Rising Equity Glide Path
A rising equity glide path is a retirement asset allocation strategy in which the portfolio equity allocation starts relatively low at the beginning of retirement and gradually increases over time, the inverse of the conventional declining-equity approach, designed to reduce sequence-of-returns risk in early retirement while capturing equity growth as the portfolio matures.
The rising equity glide path runs counter to the traditional financial planning model of progressively reducing equity exposure throughout retirement in favor of increasingly conservative fixed income allocations. The traditional model is intuitive: as a person ages and their time horizon shortens, their ability to recover from market losses diminishes, so a gradual shift toward capital preservation makes sense. The rising equity glide path challenges this intuition with a specific and compelling argument about where sequence-of-returns risk is most concentrated.
Research by financial planner Michael Kitces and retirement researcher Wade Pfau demonstrated that sequence-of-returns risk is highest in the early years of retirement, not the late years. A retiree who withdraws from a declining market in year one of retirement liquidates shares at depressed prices, permanently reducing the number of shares available to participate in subsequent recovery. This mathematical impairment is most severe early because the portfolio is at its maximum size and the withdrawal represents the smallest fraction of the total — counterintuitively, the early years are when each percentage point of market loss does the most damage in absolute dollar terms relative to the lifetime portfolio trajectory.
By entering retirement with a lower equity allocation and increasing it gradually over the first 10-20 years of retirement, the rising equity glide path reduces the impact of an early bear market on the portfolio while positioning the retiree to benefit from equity growth in later years when the sequence-of-returns threat has substantially diminished. If the early years prove benign — markets cooperate and the portfolio grows — the lower early equity allocation captures less of that upside. But in the tail risk scenario of a severe early bear market, the lower early equity allocation means fewer shares are sold at depressed prices, protecting the portfolio more effectively than a static or declining equity allocation.
The rising equity glide path pairs naturally with the bond tent strategy: the bond tent represents the pre-retirement buildup and early retirement phase of the allocation, while the rising equity glide path describes the trajectory as retirement progresses. Together, they form a complete allocation arc from the accumulation phase through full retirement.
The implementation requires a defined glidepath schedule — how many percentage points of equity are added each year or over each period — and a mechanism for executing the shift. Rebalancing by directing new fixed income cash flows from bonds or dividends toward equity, rather than selling bonds to buy stocks, can accomplish the transition in a tax-efficient manner in taxable accounts. Within tax-advantaged accounts, direct rebalancing between asset classes can be executed without immediate tax consequences.
Critics note that the strategy requires behavioral discipline to increase equity exposure during or after a bear market, precisely when investor psychology is most pessimistic. The mechanical benefits of the rising glide path depend on maintaining the predetermined schedule rather than abandoning it when markets are distressing.