A pre-retirement glide path is the planned, gradual reduction of growth assets in favour of defensive assets over the final 5 to 10 years before retirement. The goal is to reduce sequence-of-returns risk — the chance that a major market drawdown just before retirement permanently impairs income capacity. Standard approaches reduce equity by 1–2 percentage points annually, targeting a 60/40 split at retirement.
For Australians in the final 5 to 10 years before retirement, one of the most important portfolio decisions is the trajectory of risk reduction — the "glide path" from a growth-heavy accumulation portfolio toward a more defensive retirement allocation. The decision is consequential: too aggressive an allocation in the final pre-retirement years exposes the portfolio to a major market drawdown that the retiree no longer has working income to weather; too defensive an allocation sacrifices long-run growth on a portfolio that may need to fund 25 or more years of retirement. The traditional "100 minus age" rule of thumb captures part of the story but misses important nuances. A more sophisticated approach considers risk capacity (wealth versus spending dependency), sequence-of-returns risk specifically, and the household-wide nature of the allocation question.
The rationale for derisking in the pre-retirement window comes down to sequence risk. A 30% market drawdown in the year before retirement can permanently impair retirement income capacity, because the retiree no longer has working income to weather the recovery period. The same drawdown in early career is uncomfortable but recoverable through subsequent decades of contributions and growth. The pre-retirement period is structurally the most dangerous time to hold a heavy growth allocation — the portfolio is at its largest absolute value, the time horizon for unaffordable losses is shortest, and any damage compounds against the entire planned retirement.
The traditional "100 minus age" rule says a 60-year-old should hold 40% equities, a 70-year-old 30%, and so on. The rule has the right directional intuition but several limitations. It doesn't account for longevity — with Australian life expectancies at 84+ for men and 87+ for women, a 65-year-old has 20+ years of expected retirement, and a 35% equity allocation may underperform inflation over that horizon. It treats all 65-year-olds the same, ignoring substantial differences in wealth, spending, and portfolio dependency. It applies the same allocation regardless of market valuations or investor risk tolerance. And it doesn't address sequence risk specifically — it reduces equity gradually with age but does not target the specific danger of the final pre-retirement years and early retirement years.
A more standard practitioner approach is linear derisking over the final 5 to 10 years of working life. For a balanced retirement target of, say, 60% growth and 40% defensive, the schedule might run from 80/20 at age 55 to 60/40 at age 65 — reducing growth allocation by approximately 2 percentage points per year over 10 years. The trajectory is gradual rather than abrupt, avoiding the risk of selling growth assets at a market low or buying defensive assets at a yield trough. The schedule can be implemented at the start of each financial year, or quarterly, or rolled into ongoing contributions and rebalancing. Target-date funds (sometimes called lifecycle funds in Australia) have this glide path built in — members holding such funds get the derisking applied automatically. Members in choice options or default investment options need to apply it deliberately.
A counter-intuitive but well-researched alternative is the rising equity glide path. The argument: sequence-of-returns risk is concentrated in the early retirement years. A bear market in the first 5 years of retirement is far more damaging than the same drawdown in years 15 to 20. Holding low equity exposure in the first 5 years of retirement protects against this specific risk; gradually rebuilding equity through retirement is safe because the retiree has demonstrated they made it past the danger zone. The schedule might run 30–40% equity at retirement, gradually building back to 50–60% by age 80. The approach optimises specifically for the sequence-risk problem and is supported by some retirement-income research. It is less commonly implemented because it requires deliberate adviser-led management rather than auto-pilot mechanics, and it runs against the intuition that older investors should hold less equity.
A meaningful distinction beyond age-based rules is between risk capacity and risk tolerance. Risk capacity is the household's ability to withstand portfolio losses without compromising essential goals. A retiree with $3 million and $40,000 spending requirements has high risk capacity — even a 50% loss leaves $1.5 million, well above sustainable spending capacity. A retiree with $400,000 and $40,000 spending has low risk capacity — the same loss is potentially catastrophic. Risk tolerance is the investor's behavioural comfort with portfolio volatility, which is partially independent of capacity. Some high-capacity investors panic at 20% drawdowns and sell at the bottom; some low-capacity investors ride out storms calmly. A well-designed glide path matches the actual risk capacity of the household, modulated by behavioural tolerance, rather than just the chronological age of the investor.
The glide path is applied at the household level, not the individual account level. Most pre-retirees have wealth in multiple containers — super in accumulation, super in pension phase (if any has been commenced), non-super investments, cash and term deposits, property. The aggregate growth/defensive split across all containers is what matters, not the allocation within any one account. Implementation typically involves reviewing the aggregate position, identifying the most tax-efficient location for each asset class, and applying the glide path through rebalancing in the easiest containers (typically super, where rebalancing is tax-free, before non-super where CGT applies).
Several situations weaken the standard derisking case. Intergenerational holdings — wealth intended for adult children or grandchildren — have a much longer horizon than the retiree's own life. Aggressive derisking sacrifices long-run growth on funds the retiree may never spend. Substantial guaranteed income from elsewhere — defined benefit pensions, lifetime annuities, full Age Pension entitlement — reduces portfolio dependency for spending and supports a more aggressive allocation through retirement. Low spending relative to wealth — the high-risk-capacity case — generally favours less aggressive derisking. For retirees in any of these situations, maintaining more growth allocation through retirement is often the right answer.
A few common pitfalls are worth flagging. Mechanical application of "100 minus age" often produces inappropriate allocations for the specific household. Concentrated rebalancing into a single event introduces market-timing risk. Ignoring tax cost of rebalancing in non-super holdings can be material. Not considering household-wide risk capacity treats all clients of the same age the same. And reactive panic-derisking — selling growth assets at the bottom of a market drawdown — is the opposite of a planned glide path and often the most damaging.
For pre-retirees, the glide path is exactly the kind of multi-year decision where adviser-led structuring pays for itself. The schedule is set at the start of the pre-retirement window, reviewed annually, and adjusted as circumstances evolve. Mechanical or rule-of-thumb approaches frequently miss the household specifics that matter.
Key takeaways
- The pre-retirement glide path — gradually reducing equity exposure over the final 5 to 10 years — protects against sequence-of-returns risk, when a market drawdown just before retirement permanently impairs retirement income.
- The traditional '100 minus age' rule has the right direction but is too crude: it ignores longevity, risk capacity differences, and the specific concentration of sequence risk in the years immediately before and after retirement.
- A rising equity glide path — starting low-equity at retirement and gradually rebuilding — targets sequencing risk specifically, holding low growth exposure through the danger zone of the first five years of retirement.
- Risk capacity (wealth relative to spending) matters more than age: a retiree with high wealth relative to spending needs far less derisking than a retiree who is highly dependent on the portfolio.
- Glide path rebalancing is most tax-efficient when done first within super (no CGT on switches) before touching non-super holdings where CGT may apply.
Frequently asked questions
What is a pre-retirement glide path?
A glide path is the planned, gradual reduction of growth (equity) exposure in favour of defensive (fixed income, cash) assets over the final years before retirement. The purpose is to reduce the portfolio's vulnerability to a major market drawdown just before retirement, when the portfolio is at its largest absolute size and the retiree no longer has working income to recover losses. A typical schedule reduces equity allocation by 1–2 percentage points per year over the final 5 to 10 years of working life.
What is wrong with the '100 minus age' rule for asset allocation?
The '100 minus age' rule has the right directional intuition — reduce equity as you age — but several real limitations. It ignores longevity (a 65-year-old with 20+ years of expected retirement may need significant growth exposure). It treats all investors of the same age identically, regardless of wealth, spending needs, or risk capacity. And it doesn't target the specific concentration of sequence-of-returns risk in the years immediately before and after retirement, where the danger is highest.
What is a rising equity glide path and does it make sense?
A rising equity glide path starts retirement with a low equity allocation (say 30–40%) to protect against sequence-of-returns risk in the early years — the most dangerous period — and gradually rebuilds equity exposure as the portfolio demonstrates it can sustain withdrawals. This runs counter to the intuition that older investors should hold less equity. The academic case for it is solid: sequence-of-returns risk is concentrated in the early years, and holding low growth exposure specifically during that window is efficient. It requires active management rather than a set-and-forget allocation.
What is risk capacity and why does it matter for glide path decisions?
Risk capacity is the household's actual ability to absorb portfolio losses without compromising essential retirement goals — determined by the size of the portfolio relative to spending needs, not by age. A retiree with $3 million and $40,000 annual spending has very high risk capacity: even a 50% loss leaves more than adequate retirement capital. A retiree with $400,000 and $40,000 annual spending has low risk capacity: the same loss could be catastrophic. Age-based rules treat both identically; a risk-capacity-based approach produces meaningfully different allocations.
Should glide path rebalancing happen in super or outside super?
Super first, generally. Rebalancing within a superannuation account does not trigger capital gains tax — gains within super are taxed at 15% on earnings, not on switches between options. Rebalancing non-super holdings can trigger CGT at the investor's marginal rate, net of the 50% discount for assets held over 12 months. For a pre-retiree with both super and non-super investments, directing the glide path derisking through the super account preserves the tax advantage of super while achieving the target allocation at the household level.