Allocation in Retirement: A Flat Glide Path Always Make Sense

by Josh Cohen

Allocation In Retirement: A Flat Glide Path Always Make Sense Splash image

You’ve probably heard about Ali versus Frazier and Coke versus Pepsi. But have you heard about the next great debate—in the defined-contribution industry—known as “to” versus “through”?

This debate centers on what type of glide path (evolving mix of stocks and bonds) should be designed once a target date fund reaches the target year of an individual’s retirement.

The investment industry has characterized the “to” camp as proponents of the idea that target date funds should be designed primarily to build savings up to an individual’s target retirement date. Target date funds exemplifying the “to” principle have more conservative allocations to stocks (or other risky assets) at an individual’s target retirement date, typically with a flat or static allocation during later retirement years.

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Josh Cohen , CFA, is the defined contribution practice leader for Russell Research.


Anthony from New York posted over 3 years ago:

Josh Cohen has an fascinating article on allocations during retirement. However, I would like to see some examples in graphical form showing how sample glide paths change over time during retirement. Also, the discussion changes from a 6% withdrawal rate to a 4% rate. Confusing, to say the least. Granted, the Investor Professor tried to clear things up a bit, but clarity overall was poor, IMHO.

Does Mr Cohen have a more complete exposition of the glide path construct with more complete examples? I'd love to see it.

Richard from Montana posted over 3 years ago:

To complete his published article "Allocation in Retirement...," Josh Cohen must furnish a definition that his writing omits (AAII J, July, 2010, p. 10). In Figure 1 he plots expected ending wealth along the y-axis and another variable on the x-axis. But nowhere in his figure or article does the writer define this latter variable, which he calls "Shortfall Risk (Square Root of Penalized Shortfall)." Pray tell us what a penalized shortfall is and how to calculate it. Lacking this information, Mr. Cohen's work is an unfinished symphony.

John from New Jersey posted over 3 years ago:

This article might be helpful after extensive re-writing, starting with the graph. The graph displays one curve (described as "flat" even though it is upward sloping), and five data points below the graph. Where are the 5 downward sloping glidepaths described in the figure legend? Single data points do not define "slopes."

It appears that nothing has been done to alleviate the confusion described by the 2 previous reviewers (Anthony and Richard) since their posts 8 months ago.

I suggest the editors stop featuring this article on the AAII homepage until the corrections are completed.

Robert Jarvis from Georgia posted 2 months ago:

Interesting article. After reading the tricky Fig. 1 discussion a couple of times, I realized the 32% equity allocation was a close approximation of the 35% equity allocation I adopted over my first 4 years of retirement beginning in 2008. The 65% fixed income part consists of short term treasuries, target date corporate bond funds (investment grade and high yield from Guggenheim), CDs, and cash. Equities are approximately 75% dividend paying large cap stock mutual funds, 22% individual stocks ranging from Costco to Organovo (3D bio printing), and 3-4% is allocated to gold and silver - just in case. My net worth has increased more than inflation during this time while maintaining the retirement income I want. So, anecdotally, his recommended flat allocation has worked for me so far and spared me the constant adjustments which most people will not do anyway.

Jeff Kozimor from Oregon posted about 1 month ago:

I concur with comments above. This article is confusing/ lacks clarity and to have it available to members is a waste of their time. I retire in a month and have no clue how anyone could calculate a glide path to be useful or what message the author is trying to help investors with?

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