Seeing what has since happened to the markets and the economy, Guyton believes this present amount of withdrawal is manageable. And if the rally continues and the withdrawal rate falls to below 4.5%, he would then consider increasing distributions to keep pace with portfolio appreciation.

Unless the bear market continues for the next ten years and inflation soars, Guyton believes advisors should not tell retirees to reduce their withdrawals in the middle of a substantial sell-off. "It may feel like the right thing to do, but it isn't," concludes Guyton.

The only limitation with this thinking: One doesn't know when floods will hit that 100-year high-water mark until the rivers have already crested.

One strategy investors might use to deal with this problem is to leave untouched pretax retirement accounts for as long as possible-for non-Roth accounts, that's until the age of 70 and a half-and instead draw down from personal accounts.

According to Ron Weiner, the head of Connecticut-based RDM Financial Group, "There may be a natural inclination to start accessing money that has been untouchable for a long time. But if you can afford to live off your taxable savings and investments for a while without sacrificing necessary liquidity, it makes all the sense in the world to keep tax-free accounts working for as long as possible." Roth accounts, since their withdrawals are not taxed, should be the last touched.

Cash Crunch
However, not everyone will remain gainfully employed until retirement or have accounts sufficient to live off of when they stop drawing a paycheck. "There are investors that need to tap into their retirement accounts before they reach 59 and a half, the age in which they can start withdrawing from such accounts without restriction," explains J. Graydon Coghlan, who has been running his own shop, Coghlan Financial Group Inc., in San Diego since 2002.

"As a result of massive layoffs, the market collapse and cash accounts that generate very little income," says Coghlan, "we are seeing about twice the number of individuals looking into penalty-free early withdrawals than we saw just five years ago."

Such withdrawals can be done via IRS rule 72(t), which allows early fixed withdrawals from retirement accounts without penalty for five years from the first date of distribution or until the age of 59 and a half, whichever is longer.

It sounds like a promising way for workers who need additional cash to get by. But there are three catches. One is that draining retirement accounts early may be setting up retirees for financial problems later on. Two, investors who begin paying taxes on monies withdrawn from all non-Roth retirement accounts deprive themselves of capital that could be growing tax free. And three, the withdrawal is fixed to the federal mid-term rate, which is currently low and so it limits the amounts an investor can annually withdraw.

But despite the tremendous advantage in keeping tax-free retirements funded and functioning, investors might still consider withdrawing more now because taxes will be higher next year. Leo Marzen, a partner at New York-based Bridgewater Advisors, says, "Advisors may suggest clients [take] out up to two years' amount of withdrawals before the end of this year to avoid getting clipped by substantially higher taxes." If this is done after an investor stops drawing a paycheck, a larger-than-normal withdrawal might not necessarily push an investor into a higher tax bracket.