What is meant by the term "glide path" in retirement planning?

The term "glide path" in retirement planning refers to a systematic approach to changing asset allocation over time as an individual approaches retirement. This concept involves gradually shifting the investment mix from higher-risk assets, such as stocks, to lower-risk assets, such as bonds and cash, to help preserve capital as the individual nears retirement age.

The glide path is typically represented in target-date funds or age-based investment strategies, where the asset allocation evolves in a predetermined manner, aiming to reduce volatility and risk in the years leading up to retirement. This strategy acknowledges that the time horizon for needing the funds is decreasing and adjusts the investment allocation accordingly to minimize potential losses, striving for a balanced approach that aligns with the investor's risk tolerance as they age.

In contrast, an aggressive strategy to maximize investments would not consider this systematic change in risk profile; instead, it would maintain a higher allocation in riskier assets, which could lead to increased volatility pre-retirement. A fixed investment strategy disregards market conditions, which can lead to misalignment with an individual’s shifting risk appetite. Similarly, using a benchmark for retirement fund performance does not inherently involve the strategic adjustment of asset allocation over time; rather, it provides a reference point for evaluating investment performance but does not