William Bengen, the financial advisor who created one of the most heavily cited studies on sustainable withdrawal rates, is backing off his previous findings. (Barron's) Bengen's 1994 study (Journal of Financial Planning) concluded that a portfolio balanced 50/50 (stocks/bonds) could sustain a four percent withdrawal rate though almost all market scenarios. (Importantly, Bengen's analysis assumed the four percent was set off of the initial premium amount and then was adjusted each year for inflation.)
Bengen's hedging should be obvious to anyone in the financial planning business. Yields on stocks have fallen and yields on bonds have plummeted, making it very difficult to create the required returns without capital appreciation. This simple fact requires advisors and investors to make a difficult decision: settle for lower withdrawal rates, or take more risk.
From the big moves in junk bonds, master limited partnerships, and other high-risk investments, it appears that many advisors and their clients have opted to take more risk.