Glide Paths: Slowly Shifting to Fixed Income Before Retirement
As retirement nears, preserving your hard-earned savings becomes just as important as growing them. One popular strategy to reduce investment risk over time is using a glide path a gradual shift from stocks to bonds and other low-risk assets as you approach retirement.
Glide paths are a cornerstone of many target-date funds (TDFs) and can also be replicated manually by DIY investors. In this article, we’ll explore how glide paths work, the logic behind them, and how you can apply one to your own retirement strategy in 2025.
What Is a Glide Path?
A glide path is an investment approach that gradually reduces portfolio risk by shifting asset allocation — typically from equities to fixed income as you get closer to retirement. The goal is to protect capital while still allowing for some growth earlier in the timeline.
Think of it like descending from cruising altitude before landing: you reduce speed and turbulence as you approach your destination.
Glide Path Example: Target-Date Funds
Target-date funds (like Vanguard Target Retirement 2025 or Fidelity Freedom 2025) automatically adjust your investment mix over time based on your expected retirement year.
Here’s a simplified example of a TDF glide path:
| Years to Retirement | Stock Allocation | Bond Allocation |
|---|---|---|
| 30+ years | 90% | 10% |
| 15 years | 70% | 30% |
| 5 years | 50% | 50% |
| Retirement age | 40% | 60% |
| Post-retirement | 30% | 70% |
This automated glide path removes the burden of active rebalancing and is ideal for set-it-and-forget-it investors.
DIY Glide Paths: Taking Control Manually
Not everyone wants or needs a target-date fund. You can follow your own glide path by periodically rebalancing your portfolio.
Example DIY Investor Glide Path:
Let’s say you’re 50 and plan to retire at 65. You could build a glide path that adjusts your asset mix annually:
- Age 50: 80% stocks / 20% bonds
- Age 55: 70% stocks / 30% bonds
- Age 60: 55% stocks / 45% bonds
- Age 65: 40% stocks / 60% bonds
You can adjust more conservatively or aggressively depending on:
- Your risk tolerance
- Other income sources (like pensions or Social Security)
- Expected retirement lifestyle
Tip: Use tools like robo-advisors, retirement calculators, or spreadsheet models to visualize your glide path and rebalance annually.
Why Glide Paths Matter
1. Reduce Sequence of Returns Risk
As covered in our previous post, facing a market downturn early in retirement can drastically hurt your long-term financial health. Glide paths help reduce that risk.
2. Lower Volatility Near Retirement
A bond-heavy portfolio tends to fluctuate less than a stock-heavy one providing peace of mind when you’re about to depend on your savings.
3. Psychological Benefit
Knowing your portfolio is getting safer as retirement nears can help you stay the course during market turbulence.
Downsides of Glide Paths (And How to Address Them)
- Reduced Growth Potential: Too conservative, too early, and your money may not keep up with inflation.
- Fix: Consider a slower glide or include TIPS and dividend stocks.
- One-Size-Fits-All in TDFs: Not all retirement goals are the same.
- Fix: If you’re using a TDF, check the underlying allocation and “to” vs. “through” glide style.
How to Choose the Right Glide Path
Ask yourself:
- When do I plan to retire?
- Do I want to spend down or preserve principal?
- Am I comfortable with volatility, or do I want stability?
Then decide between:
- A pre-built Target-Date Fund (hands-off, great for beginners)
- A custom glide path (hands-on, more tailored)
If you’re unsure, speak with a fiduciary advisor or use a retirement projection tool to map out your options.
Final Step Before Retirement
A glide path is an important part of your pre-retirement strategy but it’s not the only one.
Coming up next: Your Complete Pre-Retirement Checklist: Last Steps to Financial Freedom
Get ready to take a final, confident step toward retirement with a detailed checklist that covers everything from income planning to health insurance and estate documents.
