Summary Bullets:
This paper analyzes the impact of ‘To’ versus ‘Through’ glide paths in target date funds (TDFs) and reveals strategies—beyond asset allocation—that can meaningfully improve retirement outcomes.
- Historical performance: In volatile markets, “to” glide paths with conservative early equity allocations generally outperform “through” glide paths, especially during the initial retirement years.
- Impact of early drawdowns: Higher early balances from “to” glide paths often persist throughout retirement, providing greater stability.
- Long-term trends: While strong early returns can favor “through” glide paths, “to” paths frequently surpass them over time.
- Spending levels: Both strategies historically support similar feasible spending levels, so differences in allocation alone are not enough to significantly improve outcomes.
- Enhancement strategies: Adding modest inflation protection and actively managing fixed income investments historically delivered substantial benefits, improving retirees’ financial security.
Target date funds (TDFs) are a cornerstone of retirement planning, designed to help individuals grow their wealth and secure a steady inflation-adjusted income throughout their retirement years. While much debate has focused on whether glide paths should de-risk only “to” or all the way “through” retirement, our analysis shows that the differences in outcomes between these approaches are modest at best. In fact, results tend to be driven more by market movements – especially the sequence of returns – than by glide path structure.
However, there are strategies that can meaningfully improve retirement outcomes. Specifically, incorporating inflation-mitigation strategies and capturing alpha through active fixed income management have potential to enhance portfolio resilience and support higher real spending, particularly in adverse market conditions
“To” versus “through” in theory
The “to” construct aligns with the philosophical underpinnings of life-cycle investing, as articulated by Robert Merton.1 The de-risking of the glide path assumes a stable risk preference, requiring no action from an individual, as the declining appeal of higher-returning assets naturally aligns with reduced longevity risk.
In the early stages of their careers, individuals typically possess a significant amount of human capital, which they will earn and convert into retirement savings over time.The prospect of future savings allows younger investors to allocate a larger portion of their portfolios to riskier assets, such as stocks, which have the potential for higher returns.
As individuals age, their human capital diminishes while their financial capital – their accumulated wealth and investments – becomes more critical. Consequently, as individuals approach retirement, the need to preserve this financial capital increases, leading to a gradual shift toward lowervolatility investments, such as bonds.
The de-risking embedded in TDFs often leads to misconceptions about their role after retirement. A “to” glide path does not imply that retirees should exit TDFs; instead, the constant allocation simply reflects the end of the contributions that drove the de-risking process during the accumulation phase.
The relatively lower allocation to equities in “to” glide paths reflects the reality that the start of retirement marks the riskiest financial phase, as individuals transition from wealth accumulation to drawdown without future income. This shift necessitates a stable asset allocation to withstand market volatility and maintain lifestyle goals.
Consistent with this, we see glide paths de-risk as participants near retirement. However, they vary in their risk profiles and asset allocation “landing points” (see Exhibit 1).
Exhibit 1: “To” vs. “through” equity allocations
Source: PIMCO and Morningstar as of Q4, 2023
For illustrative purposes only. Figure is not indicative of the past or future results of any PIMCO product or strategy.
“Through” glide paths tend to maintain more aggressive allocations until participants reach their 70s, aiming to capture additional growth early in retirement. This approach can modestly boost at-retirement balances.2 However, it also increases exposure to market volatility during a critical window: In the early retirement years, when sequence-ofreturns risk is most acute, losses can have an outsize impact on long-term outcomes.3 This elevated risk can lead to difficult trade-offs – such as delaying retirement, reducing lifestyle expectations, or risking premature asset depletion.
In contrast, “to” glide paths de-risk more sharply by retirement age, reducing equity exposure around age 65. This conservative stance helps mitigate early retirement drawdowns and may support more consistent outcomes over the full retirement horizon. So, which approach is better?
While “through” paths may outperform if markets are strong in the years following retirement, “to” glide paths should preserve capital more effectively in adverse conditions – when it matters most. Ultimately, the choice between the two reflects a trade-off between growth potential and downside protection, particularly during the fragile transition from accumulation to decumulation.
Moreover, in the middle and late retirement years, the nature of financial risk shifts. Retirees face longevity risk – the possibility of outliving their savings – as well as inflation risk, which can steadily erode purchasing power. Compounding these challenges are unpredictable expenses unrelated to financial markets, such as out-of-pocket healthcare and long-term care costs, which tend to become more volatile later in life.4
Together, these factors require retirees to manage withdrawals and investment strategies that can support highly variable, difficult-to-hedge expenses over an extended horizon.
The middle and late retirement years are also when “to” and “through” glide paths begin to diverge more meaningfully. Both are designed to keep retirees invested and support spending throughout retirement. However, “to” glide paths maintain a relatively stable equity allocation after retirement, while “through” glide paths continue to de-risk well into participants’ 70s.
Each approach carries trade-offs. A “through” glide path’s lower equity allocation late in retirement may help reduce the risk of large portfolio losses later in life. However, this more conservative posture may also limit the portfolio’s ability to keep pace with inflation and rising healthcare costs – risks that tend to intensify with age.
By contrast, “to” glide paths maintain a higher equity allocation late in retirement, which may help sustain real spending power. While this approach introduces slightly more market risk, that risk is often partially offset by the growing role of Social Security – an inflation-adjusted income stream that gradually becomes a larger share of retirement income as assets are drawn down.5
“To” vs. “through” in practice
While the theoretical differences between “to” and “through” glide paths are intuitive, the extent of their practical impact remains uncertain. To explore this, we examine historical stock and bond returns from the Jordà-Schularick-Taylor (JST) Macrohistory Database,6 which includes economic and financial data from 18 countries dating back to the 19th century. For this analysis, we focus primarily on the U.S., though the findings extend internationally.
Using the asset allocation profiles shown in Exhibit 1, we simulate the performance of “to” and “through” glide paths for a series of hypothetical 65-year-olds. We evaluate overlapping 30-year retirement periods beginning each year from 1880 to 1990. The results, summarized in Exhibit 2, provide a historical lens on how each glide path might have performed across a wide range of market environments.
Consistent with their relative equity allocations, we see that “to” glide paths generate lower average returns for those early in retirement and higher returns after age 72, once they have de-risked beyond the “through” glide paths. This gap is meaningful: “Through” glide paths have average annual returns up to 50 basis points (bps) higher for 65-year-olds and 40–50 bps lower from age 80 onward.
Exhibit 2: Historical “to” vs. “through” returns by age in the U.S. (1880–2020)
A naive interpretation of Exhibit 2 would suggest that because “to” glide paths outperform, on average, for longer, they would lead to better outcomes. However, this is not immediately clear. Average performance masks substantial market volatility, and portfolio returns in the early retirement years can have an outsize impact on retirement success due to sequence-ofreturns risk. Therefore, it is not clear which would outperform the other in a decumulating portfolio, or by how much.
Poor early returns combined with principal withdrawals can lead to the portfolio shrinking too quickly, even if the market eventually recovers.7 In poor markets, the lower early equity allocation in a “to” glide path will outperform a “through” glide path. In these paths, a higher early balance for “to” paths tends to persist throughout retirement, at least in the historical data.
The reverse, however, does not hold: Strong early returns tend to increase “through” balances relative to “to” glide paths, but it can often be the case that a “to” balance will eventually overtake a “through” balance. For example, if we assume a 5% real spending rate and a 30-year retirement, and consider years with the most differentiated performance in the first year, we see that over half of the periods where equities do very well (and thus “through” outperforms “to” early) actually reach higher balances at age 95 under a “to” glide path. However, none of the periods where markets perform poorly (and “to” outperforms “through” early) results in a “through” glide path having higher balances at age 95. (See Exhibits 3A and 3B.8 )
Exhibit 3A: Tail performance and persistence
Exhibit 3B: “To” vs. “through” in the worst years
Source: PIMCO and the JST Macrohistory Database as of Q4 2023. Data reflect stock and bond performance from 1880–2020 using the “to” and “through” allocations shown in Exhibit 1. Spending levels are calculated using a historical inflation dataset at 5% of the initial balance. Periods are identified where the difference in returns during the first year of retirement is one percentage point or more.
For illustrative purposes only. Past performance is not a guarantee or a reliable indicator of future results.
The differences in balances above are caused by the asymmetries of sequence risk. They are probably matched by asymmetries in concern: It is very likely that retirees are far more concerned about how they will fare with poor retirement outcomes (when equities draw down early and they risk spending down their savings) than with strong ones.
While initial returns play a major role in determining how long assets will last, this is a slightly different question from the one explored above. Exhibit 4 illustrates the success rates of “to” and “through” glide paths under two spending strategies and five retirement horizons. Specifically, we evaluate real spending levels of 4% and 5% annually, applied over retirement durations of 20, 25, 30, 35, and 40 years. This framework allows us to assess how each glide path performs under varying withdrawal pressures and longevity scenarios, offering a more nuanced view of their resilience across different retirement profiles.
Exhibit 4: “To” vs. “through” success rates
Success rates are relatively close, though, as we saw in Exhibit 3, there is some difference in the tail behavior of “to” and “through” glide paths. Both of these measures say little about central measures of performance. To this end, we can also compare the feasible spending rates of each solution for each historical time period. Feasible spending rates are defined as the level of real spending (measured as a percentage of the initial balance) that could be supported by an asset allocation for an indicated horizon, if one had perfect foresight around future market performance.9
Exhibit 5 displays the feasible level of real spending supported, on average, by “to” and “through” asset allocations in the historical data.
Exhibit 5: Feasible real spending
On average, “to” and “through” glide paths support similar feasible spending levels – but with subtle differences across retirement horizons. Over a short, 20-year retirement, “through” glide paths outperform by roughly 10 bps per year. Over a longer, 40-year horizon, “to” glide paths have the edge by about 5–6 bps. At the 30-year mark, the difference is negligible: less than 1 bp in either direction.
While these gaps are modest, they align with expectations. Higher equity exposure later in retirement in “to” glide paths supports longevity risk management over extended retirements, while the “through” approach may offer advantages over shorter horizons and face less risk that participants will run out of money, even in the face of a larger initial drawdown. Still, the small magnitude of these differences suggests that glide path design alone may not be the most powerful lever for improving retirement outcomes.
Ways to move the needle
The similar historical performance of “to” and “through” glide paths raises the question of how one can meaningfully improve retirement outcomes in a decumulating portfolio. Below, we explore two additional strategies to help retirees improve outcomes beyond glide path design.
As we will see, incorporating more explicit inflation mitigation can improve retirement outcomes, especially in adverse scenarios. This holds true even under conservative assumptions about the returns of inflation-linked assets. While historical data on real asset performance are limited – particularly in the 19th-century sample used in the early part of our analysis – we model a hypothetical inflation-mitigating allocation with real returns equal to inflation plus 0.75 percentage point. This assumption is deliberately cautious and likely understates the potential benefits of real assets. For context, Treasury Inflation-Protected Securities (TIPS) – U.S. government bonds with principal adjusted for inflation – were introduced in 1997 and currently offer real yields between 150 and 200 bps.10 In our historical simulations, however, the hypothetical inflation-mitigating asset delivers annual returns nearly 100 bps lower than nominal bonds. As shown in Exhibit 6, even with these conservative assumptions the inclusion of an inflation hedge improves portfolio resilience in the worst-case outcomes.
Exhibit 6: Historical asset and portfolio performance
With these assumptions, adding inflation-mitigating assets tends to detract from overall returns. However, this performance drag is almost entirely offset when we incorporate a modest amount of alpha from fixed income consistent with the historical experience.11 Specifically, the difference in historical average returns between the 40/60 allocation and the 40/40/20 allocation (with 20% allocated to an inflation-mitigating asset and 40 bps of active fixed income alpha) is only 6 bps. This is particularly informative: Any resulting differences in retirement outcomes are surely not from higher return assumptions (see Exhibit 7).
Exhibit 7: Moving the needle
Unlike the comparison between “to” and “through” glide paths, the combined effect of modest inflation mitigation and fixed income alpha is significant. The probability of assets surviving rises almost uniformly by 10 percentage points across all horizons for both 4% and 5% spending levels. This can afford retirees higher levels of spending or longer periods of sustainable spending. In particular, we see that 4% spending levels can be sustained almost five years longer across horizons compared with traditional “to” or “through” portfolios – despite the portfolio having essentially the identical historical average.
Inflation mitigation and fixed income alpha can improve outcomes to a degree that asset allocation dynamics cannot, and they tend to do so when that improvement is most valuable (see Exhibit 8). Adding inflation mitigation generates higher spending in the retirement windows when the need is greatest. When real spending is roughly 8 percentage points or less, the 40/40/20 portfolio tends to outperform, even with our conservative assumptions that generate identical historical returns. An 8% level of real retirement spending is, of course, well beyond the typical levels that retirees target and twice the 4% level of spending that has been a common benchmark since Bengen’s work was first published in 1991. In the most adverse conditions, we see outperformance of 40–50 bps on 4.5%–5% levels of feasible spending, so a portfolio with inflation mitigation and fixed income alpha would have supported roughly 10% higher levels of spending during what were the worst periods to retire. This far outstrips any of the single-digit basis point differences observed between “to” and “through” glide paths.
The implication is clear: While glide path design matters, the impact of incorporating inflation mitigation – especially when paired with modest fixed income alpha – can be substantially more meaningful for long-term retirement outcomes.
Exhibit 8: Better outcomes in adverse periods
Conclusion
Historical data indicate that in challenging market conditions the conservative early equity allocation of “to” glide paths tends to outperform “through” glide paths. This is particularly important during the initial years of retirement, when market volatility can significantly impact portfolio sustainability. We can see this divergence in the data: The higher early balances associated with “to” glide paths after early drawdowns often persist throughout retirement, providing a more stable financial foundation. Conversely, while strong early market returns can boost “through” glide path balances, it is not uncommon for “to” balances to eventually surpass those of “through” paths over time.
On average, though, both glide path strategies yield relatively similar feasible spending levels. The comparable historical performance of “to” and “through” glide paths requires other strategies to meaningfully enhance retirement outcomes. Rather than focusing solely on the differences between stock/bond investment allocations, incorporating modest inflation protection and active management of fixed income investments would have yielded significant benefits in the historical data. These elements would have significantly improved the financial security of retirees, ensuring that their savings lasted throughout their retirement years.
Appendix: on excess return assumptions
The empirical success rates are much closer than the asset allocations in Exhibit 1 or the returns in Exhibit 2 would suggest. In practice, the only visible difference is for a 35-year horizon, where a “to” glide path appears to support 4% and 5% spending levels slightly more often (success rates of 87% and 82% for a 4% real spending rate and 55% and 50% for a 5% real spending rate). This might suggest that “to” is better suited for more conservative goals and “through” for more aggressive goals, though this pattern does not extend to more than the 35-year horizon or different spending levels. Combined with Exhibit 3, the data suggest that “to” glide paths tend to have more assets than “through” paths in the periods when retirees are most likely to run out of money. However, the gaps in tail outcomes between “to” and “through” glide paths appear to be small: They are rarely large enough to support even one additional full year of spending.
The link between performance and retirement outcomes is not as trivial as it may appear. Exhibits 1–4 suggest that higher returns on their own are insufficient to guarantee improvements in outcomes. While active management tends not to add to net-of-fee returns in equities, historical data show that it can meaningfully add to performance in fixed income.12 In particular, the median active fixed income manager in the core plus category has outperformed the Bloomberg US Aggregate Index by 41 bps over the last 10 years. In addition, excess returns have historically been possible in the bond portfolios of the typical in-retirement target date series. Of course, it is just as important not to give away any of the excess returns from active fixed income by losing performance, on average, with actively managed equities. In large cap U.S. equities, the median active manager underperformed the S&P 500 by 152 bps over the decade.13 To this end, we consider the benefit of adding excess returns in retirement of 25 bps per year, broadly consistent with an allocation of 60% to actively managed fixed income and 40% to passive equities, combined with an average fixed income alpha of 40 bps. We consider an allocation of 40% to equities, 40% to nominal fixed income, and the remaining 20% to our hypothetical real asset with a conservative rate of return equal to the historical inflation rate plus 75 bps to reflect these effects (see Exhibit 6).
Adding alpha obviously improves results with additional returns, but the inflation-aware 40/40/20 portfolio is able to improve success rates despite producing essentially identical average returns as the “to” glide path. This is due to the relationship between the historical portfolio performance and economic conditions, shown in Exhibit 8. Importantly, this is a different mechanism for outperformance than simple portfolio alpha. Combining inflation mitigation with excess returns, as we see with actively managed fixed income, is particularly powerful. The data show that when feasible spending rates for a “to” portfolio (or a “through” portfolio, since they are so similar) were low, the 40/40/20 allocation with fixed income alpha improved retirement outcomes. This is what our conservative inflation return assumptions allow us to illustrate, as shown in Exhibit 7.
