By Linda Stern

WASHINGTON (Reuters) - After a lifetime of diligently saving, retirees are faced with a new question: How much can they take out during retirement?

Retirement -- or the "withdrawal phase of life" as actuaries and other numbers wonks refer to it -- can present a psychological challenge. It's often hard to spend money that took decades to save.

But it's also a mathematical challenge. Spend too much, and you can find yourself running out around the time you hit 75 or 80. Spend too little and you can live a retirement life of ascetic self-denial, only to enrich your kids when you die.

For many years, retirement experts have been telling retirees that 4 percent is a safe withdrawal rate. The theory, supported with lots of backtesting, holds that if you keep your portfolio diversified and start your retirement with a 4 percent withdrawal, you can increase your withdrawal by the inflation rate every year and be almost certain your money will last for 30 years. T. Rowe Price, for example, has suggested retirees can increase their withdrawals by 3 percent every year to cover inflation.

But events and developments of the last few years have cast some doubt on a 4 percent solution. In the first place, many people are retiring at 62 or under, and living into their 90s, so 30 years isn't always enough. Even more significantly, the market meltdown of 2008-2009 drove home the weakness of the 4 percent rule. When stocks and bonds deliver poor returns, even 4 percent isn't safe enough.

In fact, someone calculating their safe withdrawal rate in 2008 might only be able to take 1.5 percent of their money out, according to a paper from retirement expert Wade Pfau published in the Journal of Financial Planning. Pfau, an associate professor at the National Graduate Institute for Policy Studies in Tokyo, doesn't actually suggest that retirees restrict themselves to that degree. Rather he suggests that retirees amend their withdrawals by considering how their investments are doing and staying flexible.

"It would be a great pity if recent retirees scaled down their retirement expenditures and loved a more frugal lifestyle only to find at the end that a higher withdrawal rate could have been sustainable," he wrote.

Some financial firms have considered lowering their recommended withdrawal rate to 3 percent but have found it hard to gain traction. That's a safer rate, concedes T. Rowe Price spokeswoman Heather McDonold, but it may be "difficult and unrealistic for some folks."

For example, at the end of 2010, the average 401(k) balance held by a worker in his or her 60s, who had been on the job for between 20 and 30 years, was $159,654, according to the Employee Benefit Research Institute. Note that figure is probably high, because it only focuses on people with a long history on the job. A retiree who started pulling 3 percent a year out of that would be able to withdraw only $400 a month, enough for groceries perhaps but not much else.

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How low must retirement withdrawals go?