I agree, defender should be able to retreat, but in this way the retreat option, instead of be a desperate decision to save the army, becomes an opportunity for the defender that can attract the attacker in a trap. This could be a good tactic, in North Africa Rommel was a master of this, but A&A is more strategic than tactic. So, i think, this opportunity could be “limited”.
My idea for this is: defender can declare retreat after at least one cycle of combat. If defender declare retreat, attacker only roll for another cycle of combat and the defender remove all casualties immediately and then the combat is over, defender can’t roll for her/his units (they’re retreting). The attacker wins the combat and the defender have to move all her/his units in the SAME space. No units rest “behind”. This rule also can be applied to naval combats, because ships usually make smoke clouds to hide their retreat.
Defending submarines have still the advantage of fire back and submerge. If an enemy destroyer is there, sub’s can now retreat instead of submerging.
I like this rule!!! 😉
EDIT: i forgot… AntiAircraft and (of course) Industrial Complexes CAN’T retreat.