When stocks have been performing well, selling them to generate retirement income can feel counterintuitive. But repeatedly taking withdrawals from the conservative side of a portfolio while leaving rising stocks untouched can gradually change the amount of investment risk you own. In this hypothetical example, a $2 million portfolio that begins at 60% stocks and 40% bonds eventually drifts to approximately 77% stocks and 23% bonds.

The important question isn’t whether anyone can predict when a bull market will end. It’s whether the portfolio you own after generating retirement income still reflects the amount of stock exposure you intended to have.

Quick Answer

A 60/40 retirement portfolio can become much more stock-heavy without the investor ever consciously deciding to increase risk. In this example, three strong stock-market years combined with $80,000 annual withdrawals taken from bonds move the allocation from 60/40 to 66/34, then 72/28, and eventually 77/23.

Rebalancing after that drift would require moving about $453,000 from stocks into bonds. The difficulty is psychological as well as financial: every previous decision to leave the stocks alone has been rewarded.

Key Takeaways

• The source of your retirement withdrawals can change your portfolio allocation over time.
• A portfolio that begins at 60% stocks and 40% bonds can drift significantly when stocks outperform and withdrawals come primarily from bonds.
• In this hypothetical example, the allocation progresses from 60/40 → 66/34 → 72/28 → 77/23.
• Strong markets can reinforce confirmation bias, recency bias, outcome bias, self-serving bias, FOMO, and motivated reasoning.
• Returning a 77/23 portfolio to its intended 60/40 allocation would require moving approximately $453,000 from stocks into bonds in this example.
• Under the hypothetical 30% stock-market decline used in the video, the 77/23 portfolio falls about 23%, while the 60/40 portfolio falls about 18%.
• Rebalancing is not a prediction about what markets will do next. It is a decision about how much stock exposure you intend to own while the future remains uncertain.
• A useful retirement-income question is: What do I want my portfolio to look like after I generate the income I need?

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Who This Is For

This discussion is especially relevant if you are retired or approaching retirement and expect to take regular withdrawals from an investment portfolio. It may also be useful if you maintain a target allocation between stocks and bonds, have experienced several years of strong market returns, or find yourself reluctant to sell investments that have recently performed well.

The example is also useful for investors who think of withdrawal decisions and investment-allocation decisions as separate issues. As the scenario demonstrates, the asset you choose to sell—or choose not to sell—can affect what the portfolio owns afterward.

The Hypothetical Retirement Scenario at a Glance

Assumption	Example
Starting portfolio	$2,000,000
Starting allocation	60% stocks / 40% bonds
Annual retirement income	$80,000
Hypothetical annual stock return	20%
Hypothetical annual bond return	3%
Number of strong-market years	3
Allocation after Year 1	About 66/34
Allocation after Year 2	About 72/28
Allocation after Year 3	About 77/23
Amount required to return 77/23 to 60/40	About $453,000 moved from stocks to bonds
Hypothetical stock decline stress test	-30%
Approx. decline of 77/23 portfolio	23%
Approx. decline of 60/40 portfolio	18%

This is a hypothetical, illustrative example. It is not a forecast or individualized investment recommendation.

Behavioral Biases That Can Affect Retirement Investment Decisions

Confirmation bias occurs when information supporting an existing belief receives more attention than information that challenges it. In the example, positive earnings, a resilient economy, and rising account values all make the decision to continue holding stocks easier to justify.

Recency bias makes recent experience feel more likely to continue. After avoiding stock sales during one strong year and then seeing stocks rise again, the investor has personal experience reinforcing the decision.

Outcome bias occurs when a good result makes the decision that preceded it seem better simply because the outcome was favorable. A good outcome, however, does not by itself prove that the amount of risk taken was appropriate.

Self-serving bias can lead people to give themselves more credit when things go well. Instead of thinking, “The market gave me three strong years,” the investor can begin thinking, “I’ve been right for three years.”

Motivated reasoning can then bring these forces together. Once someone wants the bullish conclusion to remain true, it becomes easier to assemble reasonable-sounding evidence for continuing the same behavior.

Video Transcript

The transcript below preserves the wording from the video. Headings have been added for readability.

Should You Sell Stocks After a 20% Gain?

The stock market is up 20%. You’re retired and you need $80,000 from your portfolio. Now you’ve got a decision to make. Do you really want to sell the stocks that just made you all that money? Because you might be thinking, what if I sell now and the market goes up another 20%?

So maybe you leave the stocks alone. You take your retirement income from the conservative side of the portfolio and let the stocks keep running. That feels pretty reasonable. But what if the market goes up again? And again.

Let’s watch what happens.

The 60/40 Retirement Scenario

We’re starting with a hypothetical $2 million retirement portfolio. Our investor in this scenario intentionally chose to have 60% in stocks and 40% in bonds, so 60-40. And they’d need $80,000 of income from the portfolio each year. Now, for this example, we’re going to assume that the stocks are going to earn 20%, bonds are going to earn 3%, and no inflation adjustments to the income.

We’re just going to keep it simple because we want to show you a few dynamics that take place. To help you understand the decisions that you’ll have to make and how they come together. It’s a really cool concept.

So we’re also going to compare that to another investor that experiences the same exact returns, needs the same exact income, but makes a different decision regarding where he takes that income from and what he does with the portfolio. And before you dismiss three strong stock market years as unrealistic, look at this. We’ve recently had multiple occasions of something like this happening.

So three years of exactly 20% isn’t prediction. We’re just using it because the math is easy, but I’m showing you these charts because I want you to understand that it’s not unrealistic. What I want you to watch as we go through these is what several strong years can do to the portfolio and to the person making the decisions.

How Behavioral Biases Start Stacking Up

Okay, so first year, stocks are up 20, bonds are up 3%. And before we’ve even taken a dollar for income, the market has already moved us off of our 60-40 portfolio. Now think about what’s happening around us. Earnings are strong, the economy looks resilient, our account balance is going up.

And we’re thinking, why would I sell stocks right now? This is where confirmation bias can start showing up. Once we believe something, we naturally tend to notice and give more weight to information that supports what we already think. And right now, there’s plenty of information that we could use to support the belief the stocks have more room to run.

So we leave the stocks alone and we take the $80,000 of income that we need from the bonds. So that means we finish the year at about 66% stock and 34% fixed income. We started at 60-40, keep that in mind.

Now, second year of retirement. Stocks go up another 20%, bonds earn another 3%, but something has changed. Last year, we decided to not sell stocks, and it worked. Maybe inflation looks better this year, maybe economic growth continues to hold up.

There are still plenty of reasons to feel optimistic, but now it doesn’t just feel like a forecast, it feels like experience. We just did this last year. We didn’t sell stocks, stocks went up again, and we’re thinking, you know, good thing I didn’t sell, I would have missed out on a big opportunity. And that’s what we call recency bias. This is when recency bias starts to creep in.

What just happened starts to feel more likely to keep happening, and the fear of missing out then becomes a little bit stronger. So now we’ve got confirmation bias and recency bias at the party with you. And we make the same decision. Another 80,000 comes from bonds. What this does is this now moves the allocation to 72% stock and 28% fixed income.

When Good Outcomes Reinforce the Decision

Year three of retirement. Stocks go up another 20%, and of course the bonds are going to earn another three in this example. So we can still find plenty of reasons to be optimistic. Corporate profits look healthy.

The economy continues to hold up and the market keeps rewarding us. But now we’ve got something even more powerful than a bullish opinion. We’ve got a track record. We didn’t sell stocks in year one, that worked. We didn’t sell stocks in year two, and that worked also.

And now stocks have gone up again. This is where outcome bias can start influencing us. When the outcome is good, it’s easy to assume the decision that produced it must have been good too. But the outcome alone doesn’t tell you whether it was a good decision.

Because you can make a very thoughtful decision and still get a bad outcome. And you can make a questionable decision and get a great outcome. And this is what makes outcome bias so dangerous. A good outcome can make a decision seem completely reasonable, even if that decision is quietly moving you farther away from where you originally intended to be.

And remember, confirmation bias and recency bias, they haven’t gone anywhere. They’re still here at the party, they’re working against you as well. So another bias is going to join the party. And this is what we call self-serving bias.

So when things go well, we tend to give ourselves a little more credit for the outcome than we probably deserve. Instead of thinking the market gave me three really strong years, we start thinking, I’ve been right for three consecutive years. Now look what’s stacking up.

Confirmation bias is giving us reasons to stay bullish. Recency bias is telling us that what’s been happening may continue to keep happening. Outcome bias is making the decision not to sell look better and better, and self-serving bias is starting to convince us that maybe we’re pretty good at making these decisions.

How 60/40 Quietly Became 77/23

So we do it again. Another 80,000 comes from bonds. And look where we’re at now. About 77% stock and 23% fixed income. And we started at 6040.

Notice what’s happened. At this point, all of these things are working together. The market’s strong. The economic story supports our optimism. Recent experience tells us the trend may continue.

In the outcome, it keeps validating our decisions. And now we’re giving ourselves some credit for getting it all right. That’s where motivated reasoning can start taking over. Once we want a conclusion to be true, it gets easier to build a perfectly reasonable case for why it is.

The market’s strong, the economy looks good, my decisions have been working. I’ve been right for three consecutive years. Why sell now? The plan didn’t change. Everything around the plan did.

Three years ago, this investor intentionally chose to have 60% invested in stocks. There was never a conscious decision to weigh the trade-offs and move the allocation to 65% or 70% or 77%. But that’s where they currently are.

Comparing the Two Portfolios

Now let’s bring back our other investor. Same starting portfolio, same market returns, same $80,000 of retirement income every year. The difference is that each year, investor B brought the portfolio back to the intended 6040 allocation? After three years, that portfolio was worth about 2.63 million.

The investor who kept riding the bull market has about 2.7 million. So the investor who let stocks run has more money. That’s exactly what we’d expect. They own progressively more stocks during three straight years when stocks were up 20%. But look at what they own now.

Investor B, retiree B, is still 6040. The other is about 7723. And those two portfolios aren’t going to behave the same way from here.

The $453,000 Rebalancing Decision

And now comes the decision we haven’t talked about yet. So let’s say our 7723 investor looks at the portfolio and says, Man, this is a lot of risk. I own more stocks here than I ever intended to. I need to change my allocation. I want to get back to 6040.

Well, getting back there means they have to sell about 453,000. Of stocks and then transition that money or redeploy it into bonds. Think about for a second just how that might feel for that investor. Think about how it may feel for you.

Stocks have gone up 20% three years in a row. Every one of your decisions not to sell has been rewarded. You’ve had plenty of reasons to believe that the bull market could keep going, and you actually believe it will keep going. And now you’re supposed to move more than $450,000 out of the thing that’s been working best.

Does that feel? That’s FOMO. Fear of missing out because you still don’t know what happens next. Stocks could go up another 20%, or 30%, or 40%. They could be flat, or of course, they could fall.

Rebalancing, changing the allocation back to your intended target, it can’t tell you what happens next. It answers an entirely different question. How much stock exposure do I actually want while I wait to find out?

What Happens If Stocks Fall 30%?

Now let’s stress test these two portfolios. So we can see what those different allocations actually mean for you in retirement. Let’s assume stocks fall 30% and let’s watch what happens. The investor who kept riding the bull market entered the decline with about 77% in stocks. That portfolio falls about 23%.

Now, look at the investor who kept bringing the portfolio back in line with their intended allocation, back to 6040. They suffered the same 30% decline in stocks, but that portfolio falls only about 18%. Same market, different exposure, different results. Before the decline, the investor who kept riding the bull was ahead. Makes a lot of sense.

They have more exposure to equities and the market’s going up. After the decline, the 60-40 investor is ahead. And of course, what does this remind you of?

The old fable, the tortoise and the hare. And retirement investing is usually like that. It pays to be the tortoise more often than it does to be the hare. And you can see by looking at the numbers right there, there’s not that big of a benefit from being more aggressive.

What Rebalancing Is Really For

Now, it would be easy for me to put a big 30% decline on the screen and say, see, they should have rebalanced. But that’s hindsight. Nobody knew the decline was coming. And rebalancing isn’t a prediction about when the bull market will end.

It’s a decision about how much of the bull market and how much of the next bear market you intended to own. The risk wasn’t that stocks went up. The risk was that the portfolio became much more aggressive without the investor ever consciously deciding to make it more aggressive. And notice the chain that got us there.

The market changed the portfolio. That changed how we felt. Those emotions influenced where we generate our retirement income. And that decision changed the portfolio again.

The Retirement Feedback Loop

So the financial side and the human side started feeding each other. Now, the connections in retirement, not just the human side and the retirement side, but the interaction between the decisions that we have to make and the outcome of those decisions and how they’re all connected and even how the tax code pushes back when you make some of these decisions. That idea is the core of my upcoming book called The Connected Retirement. It’s going to be released in early 2027.

The Question Retirees Should Ask

But what matters in retirement isn’t only the first decision. It’s what that decision causes to happen next. So before asking, what should I sell to create my retirement income, I want you to ask one more question. What do I want my portfolio to look like after I generate the income I need?

Frequently Asked Questions

What does a 60/40 portfolio mean?

In this example, a 60/40 portfolio means 60% of the portfolio is invested in stocks and 40% is invested in bonds. The allocation represents the hypothetical investor’s intended balance between growth exposure and more conservative assets.

How can a 60/40 portfolio turn into a 77/23 portfolio?

The allocation changes because stocks rise substantially while the investor repeatedly takes retirement withdrawals from bonds instead of selling stocks. Over the three-year example, the stock portion grows while the bond portion is reduced by withdrawals, moving the portfolio from 60/40 to approximately 77/23.

Why would a retiree avoid selling stocks after a strong market year?

The investor may be concerned that stocks will continue rising after they sell. In the video, that fear of missing future gains is reinforced by confirmation bias, recency bias, successful past outcomes, and eventually self-serving bias and motivated reasoning.

What is portfolio drift?

Portfolio drift occurs when the percentages of different investments move away from their intended targets. This can happen because different assets earn different returns, because money is added or withdrawn unevenly, or through a combination of both—as demonstrated in this example.

How much would the investor need to move to get from 77/23 back to 60/40?

In this hypothetical example, returning the portfolio to the intended 60/40 allocation would require moving about $453,000 out of stocks and into bonds.

What happens to a 77/23 portfolio if stocks fall 30% in this example?

The hypothetical 77/23 portfolio declines approximately 23% when stocks fall 30%. The portfolio maintained near the intended 60/40 allocation declines approximately 18% under the same stock-market stress test.

Does rebalancing mean you think the stock market is about to fall?

No. The central point of the example is that rebalancing is not a forecast about when a bull market will end. It is a decision about how much stock exposure an investor intends to own while the future remains unknown.

Is a 60/40 portfolio appropriate for every retiree?

No single allocation is appropriate for everyone. The 60/40 allocation in this example is simply the allocation the hypothetical investor originally intended to own, and the point of the scenario is to show what can happen when the portfolio moves materially away from that intention.

How can retirement withdrawals affect asset allocation?

Withdrawals change not only the size of a portfolio but potentially its composition. If income is repeatedly taken from one portion of the portfolio while another portion grows, the remaining asset mix can become very different from the investor’s original target.

What question should retirees ask before deciding what to sell for income?

The video closes with a useful decision lens: “What do I want my portfolio to look like after I generate the income I need?” That shifts the focus from simply deciding where today’s cash should come from to considering what the withdrawal leaves behind.

Want to See How This Applies to Your Retirement?

The example above uses a hypothetical $2 million portfolio, but your retirement may involve a different mix of investments, income needs, taxes, Social Security, pensions, or other accounts.

If you’re wondering what these decisions could look like with your numbers, you’re welcome to schedule a complimentary visit with our team at Oak Harvest Financial Group.

We’ll learn more about your situation, what you’re trying to accomplish, and the questions you want answered. https://click2retire.com/4h01Ddz