Life After Full-time Work Blog

Learn about preparing for life after full-time work through posts from Don's upcoming book.

#78 Glide From Youth Into Life Two (Walk 20)

To celebrate the availability (finally!) of Life Two as a paperback, here’s an extract from it. This is Walk #20 (of 24) exploring how to get to and enjoy what used to be called retirement. It has the same structure as all the other Walks. First “where the route takes us,” previewing where we’re going. Then the learning. Then a reminder of the destination (in other words, the takeaway). Then (a new feature, specially created for the Life Two book) an exercise for you to do, so that you’ll see how the learning applies to you — this is how everything sticks with you and you create your own personalized plan. And finally, identifying the complementary stages in Freedom, Time, Happiness, a free companion volume (referred to as the Hoho Bus Tour) that will shortly be available on the website. I hope you enjoy the content of Walk 20 and it inspires you to buy Life Two!

Note: I understand it’s available globally as an ebook, and as a paperback directly at,, .de, .fr, .es, .it and, and that it could take up to 30 days to be available directly as a paperback elsewhere, particularly .ca and


Where the route takes us

This is for those who are still accumulating assets, and haven’t yet transitioned into Life Two. Through the story of how the global financial crisis and market crash of 2008 affected different members of a family in different ways, this Walk draws lessons for how the goals of growth and safety typically change as we age.


The learning

Americans introduced a simple but powerful concept for all of us who invest for retirement. They called it a glide path. It concerns your exposure to equities. Like a plane, your exposure should start high and glide gradually down over time as you approach retirement. How high it should start, and how low it should get at retirement: those are aspects that can and should be customized to your goals, your other sources of retirement income (such as the Pillar 1 pension) and your risk tolerance. But the notion of gliding down as you age is common to all such paths.

I could explain the rationale the way economists do, by referring to financial capital and human capital. But it’s much more compelling to tell a story.


Once upon a time there was a family living in America. Dad was an investment geek, and the family endured his stories and lessons over the dinner table. He was fond of waving his arms and proclaiming that young people could invest 100% in equities without worrying. And the family was fond of Dad, tolerated him with affection, and generally ignored his well-meaning advice, whether on investment or anything else.

Son grew up, left home, got a job, and started investing in his company’s retirement plan, called a 401(k) plan. He chose a fund that invested 100% in global equities. (He had remembered about global diversification.)

Along came the global financial crisis, and early in 2009 Son took his annual statement to Dad and, with a reproachful look, showed it to him.

Dad was ashamed that his first instinct was a feeling of pleasure that Son had actually listened to him about something. This was not par for the course. But he suppressed that feeling, since Son’s look didn’t just imply “Look what’s happened to my assets.” It was worse than that. It was more like “Look what you’ve done to me.” Son was upset at the big loss, and at the very least needed empathy.

So Dad also suppressed the geeky responses that came to mind. He didn’t say: “Did I ever tell you about mean reversion?” This is the notion that, over time, returns tend to revert to some sort of long-term average, and don’t stay extreme for long. No, Son’s money had depreciated permanently. Suggesting that the market would restore the loss wasn’t credible.

He also didn’t say: “Gosh, your fund only lost 30%. The global equity index lost 40%. You did 10% better than the index. People would kill for that sort of outperformance!” As another saying goes, you can’t eat relative performance; losing less than others is no consolation.

So Dad said, “Yes, we’ve all lost money. This has been the worst market in two generations. The loss is beyond anything we ever seriously considered. The thing is, let’s see how much of an impact it has on your goal, which is income security in retirement.”

And Dad did a couple of rough calculations about how much income Son could reasonably expect at retirement at age 70. (After those dinner conversations, Son knew he wasn’t likely to be able to retire earlier than 70. But that would still probably give him a generation of active enjoyment.) First Dad projected the income that might have accrued if the index hadn’t gone down at all. Then he reduced the current assets by 30% and repeated the projection. And lo and behold, the projected income only decreased by 3%. Just a nuisance, rather than a tragedy.

How was that? No, not sleight of hand. The explanation was that 90% of the projected 401(k) income was due to come from Son’s future savings. (Son was about 30 at the time, and hadn’t been saving long.) That portion didn’t suffer the market decline because it had not yet been saved. Only 10% of the projected retirement income was affected; a 30% loss there meant a 3% loss overall.

(For the geeks among you … Economists would say that Son’s retirement assets consisted, at that point, of 10% financial capital, invested in equities, and 90% in human capital – essentially future earning and saving power – and therefore not yet exposed to the market. If you assume that Son, through his accumulation years, has very roughly a “constant relative risk aversion,” meaning a roughly constant tolerance for losing a proportion of aggregate retirement assets, then Son’s aggregate retirement assets should have a roughly constant mix of growthy and safety-oriented assets. And if you consider human capital as broadly similar to index-linked safe investments rather than being growthy, then to achieve a constant aggregate exposure to growthy assets, Son’s financial capital should have a gradually falling exposure to growthy assets as Son ages. See? Isn’t this easier to understand via the story?)

Son absorbed this new perspective, this new framing of the issue, and was reassured by it. Then he asked: “How about you and Mom?” “Well,” said Dad, “our retirement assets were only 50% in equities. But it has cost us 9% of our projected income.”

In other words, even though Mom and Dad had only half of Son’s equity exposure (50% compared with Son’s 100%), they had actually taken three times as much risk. Why? Because the parents had much more in financial assets, and little human capital left.


And essentially that’s the rationale for a glide path. Most of us must necessarily take some long-term risk (in the expectation of long-term reward) in order to achieve our retirement income goals, because the amount we need to save, if we focused just on risk-free assets, is typically beyond us. The glide path approach tells us something very important: that we shouldn’t spread that long-term risk equally over our working lifetime. Instead, we should take much more at the start, when our financial capital is low, and reduce it as our financial capital increases.



When should we take investment risk? Mostly when we’re young and have little financial capital at stake, less so when we mature and have much more financial capital at stake. So the shape of our risk-taking during our years of saving should follow a sort of glide path, from higher risk to lower risk.



Apply the principle to yourself.

Are you a member of a “defined contribution” arrangement?

  • If so, what’s the investment approach you use – one you decided yourself, or a so-called “target date glide path”?
  • Do you know why the particular approach or path you’re in has the asset allocations associated with it?
    • What’s the goal?
    • What’s the risk?
    • Are you comfortable with them?
  • Do you have any personal assets or attributes that make you different from others of your age and gender?
  • Are you invested in inexpensive so-called “passive” investments or are you (implicitly) paying someone to make sure you do better than others?

In other words: do you understand your investment path and its rationale and cost?


Complementary stages on the Hoho Bus Tour

Stage F 01 in Route 4 (exploring retirement finance) goes into detail on the point that, if we focus just on safety-oriented assets, the future savings required to preserve our lifestyle are typically far beyond us.

If you want to go more deeply into the use of target date funds and customizing them to reflect your circumstances that differ from those of the average participant for whom the glide path was designed, see Stage F 12 in Route 4 on the Hoho Bus Tour.


I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

2 Responses to “#78 Glide From Youth Into Life Two (Walk 20)”

  1. Nigel Mullan says:

    Just logged on to your web site having read the July FT article and am looking round it.

    I’m 67 and enjoying life very much.

    As I’m likely to live another 20-40 years, I’m continuing to be fully invested in equities so don’t think (and I’m not the only one) that this glide path is relevant any more.

    With kind regards

    Nigel Mullan

    • Don Ezra says:

      Thanks, Nigel. Welcome to the website! You’re absolutely right in saying that the post on glide paths isn’t relevant for you: it’s only about the build-up (accumulation) stage, not about the drawdown (decumulation) stage, for which the considerations are quite different. Some quick reactions to your thoughts on longevity and equities.

      (1) Post 52 ( explains a useful longevity table (and Post 53 explains how to adapt it to any better estimate you have of your longevity). For a 67-year-old non-smoking male in excellent health, it suggests a (50/50) life expectancy of 21 years, with a 25% chance of it lasting 27 years and a 10% chance of it lasting 32 years. Broadly consistent with the numbers you mention.
      (2) That doesn’t necessarily mean you can leave your assets untouched for that long. Typically, equity exposure in decumulation reflects the pace at which it’s necessary to sell assets to generate spending money. Post 51 ( explains the concept of wealth zones. If you find that you’re in the “endowed zone” then you don’t need to sell at all, and your time horizon is essentially infinite – consistent with 100% in equities. But in the “essentials” or “lifestyle” zone a high equity exposure leaves you vulnerable to what’s called “sequence of returns” risk (I haven’t posted anything on that aspect, yet), in which early poor returns are particularly cruel ; and in the “bequest zone” there’s still the danger of a market fall bringing you back into the lifestyle zone. What I’m trying to say is that typically the relevant time horizon (at least for some of the assets) is the time until your first asset sale becomes necessary; only in the endowed zone is that your expected longevity. Congratulations if you’re in the endowed zone!
      (3) Posts 46-50 explain the calculator, which may give you numerical detail, if that’s of any interest and value to you.

      Hope that helps. Since I don’t know how much of this is familiar territory to you, I thought I’d say a little bit about how you can justify or adapt your (somewhat unusual) investment position.

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