Cotton is wary of studies that recommend initial withdrawal rates of 4%, followed by inflation-adjusted increases in subsequent years. "I'm never going there," she says. "People can do studies until they're blue in the face, but if a client is taking out a steady rate of money each year and then the portfolio drops due to poor market conditions, then something has to give," she says.

When markets go south, Cotton advises clients to generate cash by tapping maturing bonds as opposed to liquidating equities. And she stresses to her clients the need to trim their distributions or else face the prospects of potentially running out of money during their projected lifetime.

"It's the client who ultimately decides what they want to do," says Cotton. "I'll tell them it's dangerous if it gets too high, but they're adults so I can tell them only so many times. I'm not their mother."

Clients might not like that advice, but Cotton doesn't waver from her belief that it's better to underlive one's resources in order to prepare for surprises down the road. "If we end up dying with money in our pocket, then so be it," she says. "It's better than worrying about running out of money in our lifetime."

Cotton's uneasiness toward pre-scribed withdrawal rates is shared by others. "I don't think withdrawal rates fit into the real world of clients' lives and I think they're misleading," says William Starnes, partner at Mallard Advisors, a financial planning firm in Newark, Del. "I don't think it's realistic to take mandated inflation-adjusted withdrawals because life isn't fixed. Other income sources start and stop, and expenses come and go."

Starnes does a lot of cash flow retirement projections for soon-to-be retirees, and if they're relatively young he factors in starting dates for pensions and Social Security benefits. He believes that setting initial withdrawal rates sets a pattern that encourages clients to take money from their retirement accounts that they don't need. 

Take, for example, a 60-year-old recent retiree. The client needs to take larger withdrawals during the first five years of retirement until other income sources kick in. Once that money starts flowing, it's assumed she should cut back on withdrawals from her retirement account. But by setting an initial withdrawal rate and getting locked into a pattern of yearly withdrawals based on inflation-adjusted increases, the client might get into the habit and unnecessarily deplete her retirement portfolio.

Starnes' cash flow projections take into account future expenses such as potential health care costs or, for younger retirees, college expenses. He's mindful that pensions don't last forever and that Social Security benefits get halved when a spouse dies. "It's not the withdrawal rate that's important," he says. "Clients are primarily concerned with cash flow needs and maintaining a certain lifestyle over time."

Starnes notes that some clients require larger early portfolio withdrawals followed by smaller withdrawals in later years. Others might require the opposite scenario.

In addition, Starnes feels that formulated withdrawal rates ignore tax planning needs. Let's say a person in a lower tax bracket qualifies for a $50,000 withdrawal but can comfortably get by on significantly less. Starnes argues it makes no sense to take the higher distribution because it would provide more money than needed while also bumping that person into a higher tax bracket.