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24 March 2021 Financial Analysts Journal Volume 77, Issue 2

Retirement Income Sufficiency through Personalised Glidepaths

  1. Michael E. Drew
  2. Jason M. West

Retiree income can be maximised by shifting focus from targeting wealth at retirement to income sufficiency through retirement with the use of personalised glidepaths instead of approaches that use demographic averages.

Portfolio “glidepaths” accommodate growth in a worker’s early working life and transition to lower risk settings as the worker nears retirement. The success of this design hinges on its objective of amassing wealth at the date of retirement, but the design offers little in the way of a solution for the provision of income during retirement. The relevant risk for workers is retirement income uncertainty. Allocating investments through time to satisfy an income goal is not equivalent to the maximisation of wealth at retirement. We demonstrate that glidepaths can be personalised for individuals to maximise expected retirement income sufficiency under a range of assumptions, including longevity risk.

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