Safina, 23, quit her opening match against Jelena Jankovic after suffering a lower back injury.
The emotional pullout came at just 1-1 in the first set and after only 13 minutes on court.
“My body just gave up. I did everything possible to play. I went to have a cortisone injection, but I couldn’t handle the pain anymore,” said Safina, who had gone back to the top of the rankings on Monday, but only with a 155-point lead on Williams.
The American won her opening match in the $US4.55 million event on Tuesday against Svetlana Kuznetsova, to earn 160 points, and was due to face sister Venus later on Wednesday.
Organisers said Safina’s compatriot Vera Zvonareva, the 2008 runner-up, would take her place in the competition.
Safina said she had started feeling the pain on her way to her third title of 2009 in Portoroz in July, but had been determined to keep playing to stay on course for the world number spot at the end of the year.
Safina may skip Melbourne
“I’ve been playing on the pain, I have been on anti-inflammatories, on everything,” said Safina.
“I was advised to take a break after the US Open. But I thought that I was chasing this No. 1 place, I was fighting with my body.
“God knows, maybe I should have stopped after the US Open. But for two tournaments – in Beijing and Tokyo – it didn’t bother me that much. So I was still hoping.”
Safina, whose earlier 25-week reign as world number one ranking had come under fire due to the glaring absence of a major title on her CV, said she was confident that surgery wouldn’t be required.
“It’s the time, then it’s the rehabilitation. I have to work on my muscles, on my core stability. As I’m tall, I need to be strong, so I can hold myself. This is going to be a very long procedure.”
Safina added that she will also have to make a decision on whether or not to skip the 2010 Australian Open in order to complete her recovery.
Safina’s retirement leaves the White Group in the eight-player WTA Championships evenly-poised with Jankovic, Caroline Wozniacki and Victoria Azarenka all with one win with the top two making the semi-finals.
The Maroon Group in the tournament is made up of the Williams sisters, Kuznetsova and Elena Dementieva.
Earlier Danish teenager Wozniacki marked her debut by saving a match point in a 1-6, 6-4, 7-5 win over Azarenka, who spectacularly pressed the self-destruct button.
US Open runner-up Wozniacki was overwhelmed in the first set by her close friend.
But the world number four dug deep in the second set, surviving a 22-minute fifth game, as well as a 10-minute heat rule break to take the tie into the decider.
The untidy third set, with both players wilting in the crushing 33-degree night-time heat and high humidity of the Gulf, saw nine breaks of serve.
Wozniacki trailed 3-5 before Azarenka’s game fell to pieces.
The Belarusian wasted a match point in the ninth game and was suddenly 6-5 down after being penalised a point for a bad-tempered, court-side bout of racquet-smashing.