Shrinking Savings: Record Number of Americans Dip Into Retirement Nest Egg

It's a decision that 48-year-old Robert Mathis is still paying for. Over a year ago Mathis , a veteran AAA employee, tapped into his retirement account for a work related loan.

"My job at that time required me traveling a lot and I needed to buy a new car," Mathis said.

Just days after buying the car, Mathis lost his job -- which meant that his loan was immediately treated as a withdrawal, triggering heavy penalties.

"My goal wasn't to get rid of it completely but as time went by, I needed the money to survive," Mathis said.

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Mathis is not alone. With 25 million Americans unemployed or underemployed and millions more seeing their take-home pay diminished by the "great recession," it's no wonder that cash-strapped consumers are tapping into their retirement funds, years or decades too soon.

Newly-released data from Fidelity Investments, the nation's largest retirement savings company, shows nearly one in four workers, 22 percent of the workforce, have taken out loans against their 401(k) plans.

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The number of American workers borrowing from their retirement accounts is at a ten-year high, according to Fidelity's report.

Spike in Hardship Withdrawals

Not only are more Americans taking out loans against their retirement accounts, they're also increasingly making hardship withdrawals. A hardship withdrawal is emergency money from one's retirement account, typically needed for immediate or heavy financial burdens like avoiding foreclosure, paying a hefty medical bill or funding a child's college education.

In the second quarter of this year, 62,000 workers initiated hardship withdrawals. Even more Fidelity says, 45 percent of those surveyed who made hardship withdrawals last year, made one this year too.

The average age of people taking hardship withdrawals is between 35 and 55, the peak earning years for most American workers. With employers frequently cutting hours and sometimes employees, younger workers are dipping into their retirement accounts to make up for the loss.

Younger Workers Depleting Retirement Nest Eggs

These are alarming figures, considering that if you are 59 years old or younger, you incur a 10 percent penalty along with hefty federal and state taxes for tapping into your retirement account.

"It's always unfortunate when a young person takes money out of the plan because they not only have to pay the taxes and penalties, which can be quite severe, but they lose that long-term compounding effect which can have multiple effects on their retirement," said David Wray of the Profit Sharing/401k Council of America, an association of 1,200 companies with retirement plans.

In addition to the heavy penalties, what worries experts most is what this trend will mean for Americans as they get older.

An emergency withdrawal or small loan by a younger worker could mean thousands less when he or she reaches retirement age.

While some Americans have been taking money from their retirement accounts, more companies stopped matching the contributions employees made in them.

According to the Profit Sharing/401(K) Council of America, about 15 percent of American companies cut their matching contributions during the recession. Another 4 percent reduced their matches.

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