Americans' New Piggy Bank: The 401(k)

Cindy Cromie needed money to rent a U-Haul and start a new life. Her employer, the University of Pittsburgh Medical Center, had outsourced Cromie’s medical transcription work, cutting her income by as much as 60 percent, she says. So last year, at age 56, she quit and moved about 90 miles from her home in Edinboro, Pa., into her mother’s basement. To pay for the move, Cromie pulled $2,767 out of retirement savings. “We made two trips, and it just got to be real expensive,” she says. “That money, it was a security that I needed.”

For decades, as real estate values rose, Americans tapped their homes when they needed cash by refinancing their mortgages or taking out home-equity loans. Since the housing collapse of 2008, that’s often not an option. Retirement accounts have filled the void. The Internal Revenue Service in 2011 collected $5.7 billion in penalties from Americans who withdrew about $57 billion from retirement accounts before they were supposed to. Adjusted for inflation, the government collects 37 percent more money from early withdrawal penalties than it did in 2003. “They get hit with the penalty at exactly the time when they’re the most vulnerable,” says Reid Cramer, director of the Asset Building Program at the New America Foundation, which tries to improve savings for lower-income families. “So it’s a real double whammy.”