Filed Under:Annuities, Variable

As clients age, stock up on stocks

Nerd's Eye View blogger Michael Kitces
Nerd's Eye View blogger Michael Kitces

Traditional wisdom dictates that a client’s allocation to equities should decline as he or she gets older, but in a session at the IMCA annual conference on Monday, Michael Kitces asked if that was more tradition than actual wisdom.

Kitces said there were two fundamental questions clients asked about safe withdrawal rates: how much they can spend without worrying about the market, and how much they need to save to spend a certain amount.

Kitces noted that neither of these papers tested a rising equity glide path, so he conducted his own study. He tested 121 glide paths with a 4% and a 5% withdrawal rate to measure the probability and magnitude of failure.

Using historical average capital market expectations, Kitces found that a declining equity glide path performed the worst. A static glide path performed better and the rising glide path performed best of all. In fact, he found that the ideal glide path started at about 30% of the portfolio allocated to equities, rising to about 60%.

Originally published on ThinkAdvisor. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Nichole Morford

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