Why equity allocation should decline as you near retirement
A glide path is a planned shift in portfolio composition from stocks to bonds as you age. A 25-year-old might hold 90% stocks and 10% bonds; a 45-year-old might hold 65% stocks and 35% bonds; a 65-year-old might hold 40% stocks and 60% bonds. The logic is sound: stocks deliver higher long-term returns but are volatile over short periods. Young workers can tolerate volatility because they have decades to recover from downturns. Retirees cannot, because they need stable income immediately.
The classic formula is to hold your age as a percentage in bonds (age 30 = 30% bonds, 70% stocks). Modern versions use (age - 10) or (age + 10) to adjust for longer lifespans and higher return expectations, but the principle is the same: shift toward safety as the time horizon shrinks.
Automating the glide path avoids emotional decisions
Target-date funds automate this rebalancing, shifting allocation gradually without requiring you to sell stocks after downturns or buy bonds after rallies. The fund manager rebalances quarterly or annually, removing emotional decision-making.
Manual rebalancing requires discipline. It's tempting to stay aggressive when stocks are up (FOMO) and to abandon stocks entirely after a crash (panic). Automating the glide path through target-date funds or a disciplined rebalancing calendar eliminates this behavioral risk and keeps you on track.