The retirement mistake that leaves thousands fearing they'll run out of money

There's a quiet moment that happens for a lot of people right after they retire. The paycheck stops, a lump of money lands in an account, and suddenly a decision that once felt abstract becomes very real.

What happens next, it turns out, shapes whether someone spends their sixties and seventies at ease or checking their balance every week wondering how much time is left.

Cashing Out a Lump Sum Without a Spending Plan

The single decision doing the most damage to retirement confidence right now is straightforward: taking a lump sum distribution from a 401(k) or similar plan and treating it like a windfall rather than a paycheck replacement. It feels like freedom in the moment, a large number in an account after decades of contributions.

Retirees who chose to withdraw a significant sum directly from their retirement savings face the greatest financial strain, exhausting their savings faster than ever. The appeal is understandable.

Nobody wants to be told how to spend money they earned. But without converting that lump sum into a structured income plan, many retirees end up spending at a pace that has nothing to do with how long they'll actually live.

How Fast the Money Actually Disappears

The numbers behind this are sobering and getting worse. One in five retirees who took a lump sum have run through their withdrawals in just 4½ years after they retired, on average, down from 5 years in 2022 and 5½ years in the 2017 research.

That's a trend moving in the wrong direction, not a one time blip. Even among those who still have money left, the anxiety hasn't gone anywhere.

Half of retirees who have lump sum money remaining are concerned it will run out, and they estimate that, on average, they have approximately 11 years' worth of money left. Eleven years sounds like a lot until you consider that a retirement can easily stretch three decades.

Underestimating the Number, Overestimating the Timeline

This mistake rarely stands alone. It's usually paired with two other miscalculations that compound each other.

Around three in five pre-retirees and retirees admit they underestimated how much they needed to save for retirement and overestimated how long their savings would last. Put those two errors together and the lump sum problem gets even sharper.

The gap between expectation and reality has widened noticeably in just a few years. Pre-retirees now expect their savings to last, on average, only 15 years after retirement, down from 19 years just four years ago, despite many expecting to spend 25 to 30 years in retirement.

That's not a small miscalculation. That's a decade or more unaccounted for.

A Fear That Has Reached a Record High

All of this has pushed a specific worry to levels not seen before. A finding from the Allianz Center for the Future of Retirement's 2026 Annual Retirement Study puts a number on something many people sense but don't articulate: 67% of Americans say they worry more about running out of money than about dying, a share that has climbed steadily from 57% in 2022.

That's a striking shift in how Americans rank their own fears. The worry isn't evenly spread across generations either.

Gen X reports the highest level at 73%, and the concern appears across all adult age groups in the survey. People who are still a decade or more from retirement are, in some ways, more anxious than those already living it.

Rising Costs Are Making the Math Harder

Part of what's driving the fear is genuinely mathematical, not just emotional. There is a mathematical basis: 82% recognize that during a 30-year retirement, the cost of goods and services will at least double. A nest egg that looks generous at 65 has to keep stretching further every single year after that. Meanwhile, the cushion people used to rely on has been thinning out. The personal savings rate has been moving in the other direction, falling from 6.2% in Q1 2024 to 3.7% in Q1 2026, the lowest reading in the recent series, even as wages and salaries rose over the same period. Income is going up, but less of it is being set aside.

Healthcare Costs Quietly Drain Savings

Medical expenses are one of the most underestimated threats to a retirement plan, and they hit hardest when people least expect it. Estimates suggest that a 65-year-old couple may need as much as $366,000 in savings to have a 90% chance of covering healthcare expenses, including premiums, deductibles, prescriptions, copays, and other out-of-pocket costs, throughout retirement.

That figure alone can swallow a significant portion of a lump sum in a matter of years. Long-term care is an even bigger blind spot.

About 70% of people who turn age 65 will need some type of long term care in their lifetime, and the costs of long term care are exorbitant, ranging on average from $51,000 to $102,000 a year, and are not covered by Medicare. Few retirees budget for this until they're already facing it.

No Written Plan Means No Real Guardrails

A surprising number of people are making major retirement decisions with nothing written down at all. Nearly half of Americans, 48%, do not have a written financial plan.

Without a plan, a lump sum has no roadmap attached to it, which makes overspending in the early years almost inevitable. Even people who do have retirement accounts often overestimate how prepared that makes them.

Among those with retirement accounts, 58% believe simply having a 401(k), 403(b), or IRA is enough, while 56% admit they do not know what else they should be doing. Having an account is not the same as having a withdrawal strategy for that account.

Social Security Adds Another Layer of Doubt

The fear of running out of money doesn't exist in isolation from what's happening with Social Security. Trust funds are projected to deplete around 2035, meaning ongoing payroll taxes would only cover about 78% of scheduled benefits, and if Congress doesn't act by then, this will equate to cuts of 20 to 25%.

For anyone counting on that benefit as a floor under their retirement income, that uncertainty adds real weight to the lump sum decision. It also explains why inflation and Social Security concerns show up together so often in surveys.

The most respondents cited high inflation, Social Security not providing as much financial support as they need, and high taxes as the biggest contributors to their fear of running out of money. These pressures stack on top of each other rather than arriving one at a time.

Why Guaranteed Income Changes the Picture

The clearest antidote to this specific mistake isn't necessarily saving more, it's converting savings into something that can't run out on its own. One data point from the survey suggests that what people say would help: 77% report that a guaranteed income stream would decrease their anxiety about spending money in retirement.

That's a meaningful signal about what actually reduces stress, not just what sounds good on paper. Financial professionals who work with retirees see this pattern often.

Without a guaranteed income stream, retirees bear all of the financial risk themselves, and unless they take steps to secure one, they just can't get rid of that fear of outliving their resources. A pension used to solve this automatically.

Now, most people have to build that structure themselves.

Steps That Actually Reduce the Risk

None of this means the situation is hopeless, but it does mean the fix has to be intentional. Working a few extra years, converting part of a balance into an income annuity, and building a written withdrawal plan before the money arrives all shift the odds meaningfully in a retiree's favor.

Even small adjustments, made early, tend to matter more than dramatic changes made later. The uncomfortable truth is that most people only get one real shot at making this decision correctly, since a lump sum spent too quickly can't easily be undone.

A 2025 survey by the Financial Planning Association found that 47% of financial planners say their clients' biggest retirement fear is running out of money. That's the professionals who see the aftermath of this mistake up close, which says something about how often it happens.

The Bottom Line

The retirement mistake at the center of all this isn't really about a lack of discipline or poor budgeting. It's about treating a lump sum like an ending point rather than the beginning of a decades long income plan.

The fear that follows, the one now shared by a majority of Americans, is largely a symptom of that single decision made without a structure around it. Fixing it doesn't require perfection, just a plan built before the money lands in the account rather than after it starts disappearing.