Retirement Risk, Rising Equity Glidepaths, and Valuation-Based Asset Allocation

21 Pages Posted: 18 Sep 2014

See all articles by Michael Kitces

Michael Kitces

The Kitces Report & Nerd's Eye View; Pinnacle Advisory Group

Wade D. Pfau

The American College for Financial Services; Retirement Researcher

Date Written: September 16, 2014


This research investigates two types of dynamic asset allocation strategies (predetermined equity glidepaths and valuation-based asset allocation) for retirees using U.S. historical data. We analyze fixed asset allocations, traditional declining equity glidepaths, rising equity glidepaths, accelerated traditional and rising glidepaths, valuation-based allocations tethered around a fixed allocation, and glidepaths with valuation-based overlays. With U.S. historical data, it is difficult to beat a strategy which maintains a consistently high allocation to stocks (especially as measured by terminal median wealth), to the extent that a retiree’s risk tolerance allows for this, and subject to the caveat that high stock allocations cannot always be expected to do as well in the future. However, when we consider retirements beginning in varying valuation environments (as defined by the level of Robert Shiller’s cyclically-adjusted price-earnings ratio relative to its then-current historical median), we find the potential for different dynamic allocation strategies to help retirees sustain higher spending levels with lower average stock allocations in certain situations. When retirements begin in overvalued market environments (which reflects the situation for new retirees today), an accelerated rising equity glidepath has shown much potential to provide downside risk protection for retirees by minimizing equity exposure when an adverse market event would have the greatest impact. In other valuation environments, historical worst-case scenario sustainable withdrawal rates were highest with valuation-based asset allocation strategies, which maintain a midrange average stock allocation but adjust higher or lower when markets are deemed undervalued or overvalued, respectively.

Keywords: retirement planning, investing, asset allocation, glide-path

JEL Classification: D1, G2

Suggested Citation

Kitces, Michael and Pfau, Wade D., Retirement Risk, Rising Equity Glidepaths, and Valuation-Based Asset Allocation (September 16, 2014). Available at SSRN: or

Michael Kitces

The Kitces Report & Nerd's Eye View ( email )

P.O. Box 2231
Reston, VA 20195
United States
703-375-9478 (Phone)


Pinnacle Advisory Group ( email )

6345 Woodside Court, Suite 100
Columbia, MD 21046
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410-995-6630 (Phone)


Wade D. Pfau (Contact Author)

The American College for Financial Services ( email )

630 Allendale Rd
King of Prussia, PA 19406
United States


Retirement Researcher ( email )

1900 Gallows Rd, Suite 350
Vienna, VA 22182
United States


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