Key Takeaways Financial planners say retirees are more likely to outlive their savings due to poor planning and spending habits. Experts recommend keeping five years of income needs in safer assets and tracking expenses closely to avoid premature portfolio depletion. Many Americans are worried that they will live longer than their savings. “Running out of money is a real risk, and for most retirees, it doesn’t happen because of bad investments,” said Melissa Caro, certified financial planner (CFP) ...

Core Insights - The article discusses the financial decisions one should consider when receiving a windfall, particularly focusing on the case of an individual named Julia who is set to inherit $50,000 and is contemplating whether to pay down her mortgage or invest the money instead [1][2]. Group 1: Financial Decision-Making - Paying off a mortgage early can provide emotional comfort and security, but it may not always be the most financially sound decision [3]. - Julia's current mortgage rate of 3.5% is considered low compared to the average U.S. mortgage rate of approximately 6.9%, making her loan relatively inexpensive [4]. - By using her windfall to pay down her mortgage, Julia would effectively earn a 3.5% return on that money, but investing it could yield a long-term average stock-market return of around 7% annually, potentially building more wealth over time [5]. Group 2: Retirement Readiness - Fidelity recommends that individuals save roughly three times their salary by age 40 and four times their salary by age 45, highlighting the importance of retirement savings [6].

Core Insights - Many Americans are concerned about outliving their savings due to uncertainties surrounding Social Security and rising living costs [2] - The primary reasons retirees run out of money are not poor investments but rather bad timing, inflexible spending, and inadequate planning [2] Group 1: Planning for Retirement - Planning is crucial to ensure sufficient savings before retirement; individuals should consult financial advisors to determine their needs [3][4] - Retirement planner calculations based on desired spending can help individuals save and invest adequately for retirement [4] Group 2: Time Horizon Considerations - Economic fluctuations during retirement can impact savings; withdrawing from accounts during market downturns can significantly reduce savings [5] - It is advisable to keep five years of income needs in safer assets to avoid forced withdrawals from stocks during unfavorable market conditions [6] Group 3: Expense Tracking - Many retirees underestimate their spending, leading to premature depletion of their savings; tracking expenses is essential [8] - The most common mistake is guessing retirement spending without actual tracking, which can result in running out of funds earlier than expected [8]