Personal Finance

I'm about to retire and plan to withdraw 3% of my portfolio to fund my lifestyle - should the record-high stock market make me nervous?

Marc Guberti

Published: March 10, 2025 8:58 am

When investors are young, they often pour their money into the stock market and aim for long-term returns. However, their mentalities usually shift as they get older, especially as retirement comes closer.

A recent Reddit post in the Chubby FIRE subreddit highlights this concern. A Redditor has enough to retire with an annual 3.3% withdrawal rate. The Redditor also mentioned that the level of spending is very comfortable and that they can bring it down to 3% without much impact.

However, the big question the Redditor has is whether it makes sense to sell some stocks. They have 60% in stocks and 40% in fixed income, and the Redditor mentioned elevated market valuations. Does it make sense to run from stocks, or is there a better approach? I will share my thoughts, but it is always good to speak with a financial advisor if you can.

The Portfolio Allocation Plays a Role

The first question I have is how the portfolio is allocated. Yes, the Redditor mentioned a 60/40 portfolio, but it’s good to know more about the 60%. The best course of action is different if the Redditor invests in an index fund that mirrors the S&P 500 compared to buying a bunch of high-risk growth stocks.

The Redditor may want to start by assessing their risk tolerance and adjusting their portfolio based on that. For instance, if the Redditor has a low-risk tolerance, it may make sense to trim growth stocks with high valuations. Some people can hold onto index funds that mirror the S&P 500 at this stage, but each person is different.

It doesn’t make sense to abandon the stock market completely, as those investments often outperform bonds. Furthermore, bond yields are dropping, and that trend is likely to continue if the Department of Government Efficiency fulfills its objective of reducing government spending. As government spending decreases, bond yields will go down with it.

How Soon Do You Need the Money?

The Redditor mentioned they can make a 3.3% annual withdrawal and cover their living expenses. While the stock market has delivered historical annualized returns that exceed the 3.3% withdrawal rate, there may be some concerns about the stock market’s ability to deliver positive returns in 2025.

The stock market is filled with uncertainty. While taking a wider approach reveals a history of promising long-term returns, some investors can’t wait multiple years for their assets to recover. Investors who are retiring and need most of their money accessible may want to shift more of their money into fixed income. However, it can still be beneficial to keep some money in the stock market, especially the cash that you won’t have to tap into for at least another five years.

Opportunity Cost

Taking money out of the stock market will reduce your portfolio’s risk, but you can also miss out on tremendous long-term gains. For instance, many investors left the stock market in 2022 only to miss out on the big gains posted in 2023.

While risk-free investing has its perks, you will miss out on all of the returns from a bull market. Some stocks maintain high valuations because they continue to post impressive year-over-year revenue and net income growth. 

Investing in the stock market isn’t for everyone, and it becomes less enticing when people retire. However, most people can benefit from having at least some exposure to equities.