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An Analytical Evaluation of Rising Glidepath Claims

Last year, a piece by Michael Kitces and Wade Pfau made the claim that mechanically increasing the equity allocation during retirement — which they term a “rising glidepath” — could reduce the likelihood that a retiree outlives his or her assets and could decrease the magnitude of shortfall when capital market returns disappoint. Specifically, the paper stated:

“We find, surprisingly, that rising equity glidepaths in retirement … have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios.”

I initially suspected the basic claims might not hold up under analytic scrutiny and recently got the chance to dig into their data tables to find out. In my analysis, I focus on the success rates and 5th percentile shortfall results they report in Tables 2, 4 and 6 in their paper. These three tables contain results for 4 percent withdrawal rates under three different sets of capital market assumptions.

Read the rest of the article on Multifactor World.


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