Is 4% withdrawal rule for retirement still a reliable guideline?

The general guideline of withdrawing no more than 4% of your portfolio each year during retirement has come under fire as of late. This guideline was the result of a study conducted almost 30-years ago by William Bengen, at a time when it was believed that 5% was a safe withdrawal rate. In the study William determined that 5% was too risky, and proposed the change to 4%. 

 

Based on PAST historical returns, the 4% rule appears to be valid BUT prolonged periods of very low returns on bonds in recent years suggest that withdrawing 4% per year adjusted for inflation is no longer a safe guideline. 

Research by Michael Finke, Ph.D., CFP®
Wade D. Pfau, Ph.D., CFA
David M. Blanchett, CFA, CFP®
suggests that the rule is no longer a valid guide because of persistently low interest rates.

The 4% Rule is Not Safe in a Low-Yield World

Executive Summary:
"The safety of a 4% initial withdrawal strategy depends on asset return assumptions. Using historical averages to guide simulations for failure rates for retirees spending an inflation-adjusted 4% of retirement date assets over 30 years results in an estimated failure rate of about 6%. This modest projected failure rate rises sharply if real returns decline.
 As of January 2013, intermediate-term real interest rates are about 4% less than their historical average. Calibrating bond returns to the January 2013 real yields offered on 5-year TIPS, while maintaining the historical equity premium, causes the projected failure rate for retirement account withdrawals to jump to 57%. The 4% rule cannot be treated as a safe initial withdrawal rate in today’s low interest rate environment.
 Some planners may wish to assume that today’s low interest rates are an aberration and that higher real interest rates will return in the medium-term horizon. Although there is little evidence to support this assumption, we estimate how a reversion to historical real yields will impact failure rates.
 Because of sequence of returns risk, portfolio withdrawals can cause the events in early retirement to have a disproportionate effect on the sustainability of an income strategy. We simulate failure rates if today's bond rates return to their historical average after either 5 or 10 years and find that failure rates are much higher (18% and 32%, respectively for a 50% stock allocation) than many retirees may be willing to accept.
 The success of the 4% rule in the U.S. may be an historical anomaly, and clients may wish to consider their retirement income strategies more broadly than relying solely on systematic withdrawals from a volatile portfolio."

SO... what to do. No one ever really recommended that you rigidly follow the 4% guideline every year regardless of portfolio returns. Besides, our need for income fluctuates over a 25-30 year period. Duh! Thus, it is prudent to to make adjustments to balance out returns and needs over a retirement lifetime.
What is "sequence of returns risk"?? If you are lucky to retire during a decade of high investment returns, you may end up with more money than you started with at retirement. However, if the first 5-10 years of your retirement yield negative returns... you're in trouble. 

Another factor to consider is the benefit of investing a portion of your retirement into a lifetime annuity to ensure that, along with Social Security, you won't run out of money.