Retirement Raiders More Tap 401k Early

Rainy Day Relief The most commonly cited reason to raid a 401(k) was job loss.''I was unemployed for six months last year and cashed out about $5,000 of my retirement to supplement my unemployment and pay the bills,'' writes one reader, a woman named Dena from Washington state. "Yes, it was financial hardship. Nothing fancy on how it was used -- mortgage, utilities, day care (no way I could look for work and care for a toddler) and food."She also "played the credit card, balance-transfer game on another $5,000." The rate was just 1 percent, which allowed her to pay it off in six months.Dena is 40 years old, and hopes to eventually replenish her retirement savings. A trained librarian, she's now working on a contract basis, which means no 401(k) matches from her employer. She adds, somewhat cryptically: "Have a master's degree if that matters to you (LOL -- didn't matter in the job search.)"

With All Due Credit

A second leading reason readers have raided retirement funds is to get out from under crippling credit card debt.

One woman, Carol from Indiana, tells us that splurges after a happy second marriage eventually buried her and her new groom in debt. "Living beyond our means was an understatement," she says. "Before I knew it, we had $70,000 in credit card debt and huge vehicle and house payments."

She refused to entertain bankruptcy, so she raided her 401(k). "I knew that pulling money from my 401(k) was a VERY bad idea, because once you pay penalties, federal and state taxes, and take into account all of the contributions and compounded interest lost, you probably only end up with pennies on the dollar," she says. "But I had no choice."

She doesn't regret it because "at least now I am keeping my head above water after paying some bills off and refinancing some things after paying down loans and lowering payments."

Next >

Bankrate.com is the Web's leading aggregator of information on financial products including mortgages, credit cards, new and used automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans and online banking fees. Visit Bankrate.com to get the tools and information that can help you make the best financial decisions.