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The Case for a Rising Equity Glide Path During Retirement

Financial advisors often recommended that retiring investors transition growth assets to more conservative options. This is due to a concept called “sequence of returns.” If the financial markets decline at the beginning of retirement, an investment portfolio could be reduced to the point in which retirement income is greatly affected.

To help avoid this negative impact on retirement income, reducing high-risk securities may help minimize losses. However, many financial analysts are reassessing this traditional strategy in light of longer retirements due to today’s longer life expectancy. Because it is not uncommon for retirement to last at least 20 years – retire at age 65 and live to age 85 or longer – that is a substantial timeframe for equity growth. Retirees who have not saved enough to provide for a 20- to 30-year timeframe may need to keep a portion of their portfolio invested for growth opportunity for sustainable income.

In recent years there have been studies on the “rising equity glide path,” which refers to the strategy of positioning a post-retirement portfolio so that it starts out conservative and becomes more aggressive over time. Research has found that greater equity exposure in the later years of retirement may help offset the impact of a poor sequence of returns during the early phase of retirement.

The following analysis explores how a rising equity glide path could potentially fare in various market environments during retirement:

  • If financial markets remain stable throughout the entire retirement period, the strategy should be successful with the opportunity to provide a larger
  • If financial markets decline throughout the entire retirement, there really isn’t any equity-based allocation strategy that would produce long-term income, although a rising stock allocation would likely fare better than a more aggressive asset allocation throughout.
  • If financial markets perform well early in retirement but poorly later in retirement, the portfolio should benefit from a higher initial nest egg to produce a sustainable income. In this case, a rising equity glide path would simply yield a lower inheritance.
  • If financial markets decline early in retirement and then recover later, a rising equity glide path provides the optimum outcome; this is important given a scenario that is generally the most detrimental for retirees.

An equity glide path will increase market exposure later in life, so it’s important to consider whether or not this is an appropriate strategy given your asset base, tolerance for risk and investment timeline. It’s also important to consider risk within the context of losing money versus running out money. Retirees should work with an experienced financial advisor to determine a suitable long-term investment strategy based on individual circumstances.

Investing involves risk, including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values. This information is not intended to provide investment advice. Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

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Ryan Keapproth

Ryan Keapproth

Retirement Planner

Ryan is dedicated to serving clients to achieve their retirement goals. Ryan’s holistic approach centers on wealth management strategies with a focus on income planning throughout retirement. As a Financial Advisor, Ryan is an Investment Adviser Representative (IAR), life and health insurance licensed and a Certified Tax Preparer. Ryan is a graduate of the University of Minnesota, with an Accounting and Finance major.

Ryan is a lifelong Minnesotan originally from Woodbury and currently residing in Bloomington with his wife, Riamae, and their rescue Terrier Beagle mix, Douglas. He and his family are avid travelers in their free time. Ryan enjoys playing golf and poker, and describes himself as a major foodie enjoying new restaurants around the cities whenever possible. He is a sports fan especially when the Vikings and Timberwolves are playing.