Then there's inflation risk. Inflation is the ax murderer of retirement funds. Though an inflation rate of 2 percent a year may seem benign, it's in fact insidious, with a deleterious effect on your power to purchase goods. Assuming you do live 25 years into retirement, $1,000 today gets chopped down to $610, representing a 40 percent cut in purchasing power at that 2 percent inflation rate. A 4 percent rate slices $1,000 into $375 in 25 years.

The sequence of future market returns is the scariest of all scenarios, though it involves nothing but luck, whether good or bad. Assuming an annual withdrawal rate of 7 percent of assets and a starting amount of $100,000, your portfolio can run out of funds within 15 years or triple in value after 20 years, depending on whether you begin retirement at the onset of a bear market or a bull market.

In the example used in the Fidelity report, Portfolio A encountered negative volatility in its first three years -- with returns similar to those of the 2000 to 2002 bear market. By year 13, the portfolio's funds had vanished in the mist.

Meanwhile Portfolio B experienced the exact same returns as Portfolio A -- except in reverse order. After 20 years that portfolio was flush, worth $351,295. The hypothetical annual compound growth rate of both portfolios was identical at 9.4 percent.

Determining a safe withdrawal rate
Some might point out that the 7 percent withdrawal rate cited in the above illustration is not sustainable, and that observation is confirmed in a new study published in the October issue of the FPA Journal. In fact, even a 4 percent withdrawal rate, which is commonly touted as safe in financial literature, is not completely safe.

That raises a question that many retirees would like to know: Just what is a safe withdrawal rate? How much can be taken out of a portfolio on an annual basis without risk of running out of funds within 30 years? Three academics with Ph.D. degrees at State University of New York at Brockport attempt to answer that question in their study.

They examined 71 withdrawal rates ranging from 2 percent to 9 percent in increments of 0.1 percent and 21 different stock/bond allocations ranging from zero in stocks to 100 percent in stocks in 5 percent increments. For each of these 1,491 combinations of withdrawal rates and stock allocations, the study's authors imposed 10,000 30-year sequences of market returns using a "bootstrap algorithm."

Without getting into the methodology, suffice it to say that they used a lot of scenarios to come up with the most robust statistics to date. And if you use their study as a guide and still run out of money within 30 years, I guess it means you'll just have to pick yourself up by the bootstraps.