Safe withdrawal rates have been under a great deal of criticism in recent years, as both investors and planners ratchet downwards their expectations of market returns in the face of a low return environment. Of course, the reality is that safe withdrawal rates are actually based upon low-return environments in the first place, and do not rely upon long-term historical average returns. Nonetheless, a growing body of research suggests that expectations of the safe withdrawal rate should be adjusted based on the current market conditions that apply at the time of retirement.
Accordingly, today's low-yield environment, where the real return on TIPS is actually negative in the coming years, arguably represents one of those times where safe withdrawal rates should be applied with caution. And in fact, a recent draft study by Finke, Pfau, and Blanchett affirms this concern, finding that the probability of failure for today's retirees could be much higher than commonly recognized, given today's real returns on TIPS.
Ultimately, though, just because starting conditions are suboptimal does not guarantee that safe withdrawal rates will fail for today's retirees. By analogy, just because you're walking along the edge of a cliff does not mean you're certain to fall off of it; nonetheless, being closer to the edge of the cliff is certainly more dangerous than being safely inland, and similarly starting a retirement in today's market conditions clearly merits more caution and monitoring!