Record number of American workers are eating their seed corn

John Cook

To cap off a week in which new unemployment claims shot up to a nine-month high and bankruptcy filings rose to a five-year high, now comes news that American workers are breaking into their piggybanks in order to make ends meet. According to the Associated Press, a new report issued by Fidelity Investments shows a record number of Americans made hardship withdrawals from their 401(k) accounts in the second quarter of 2010. Yes, more than even at the height of the economic collapse two years ago.

Under federal rules, 401(k) plans can allow workers to take their retirement funds out early if they show an "immediate and heavy financial need" — and they still get hit with a 10 percent early-withdrawal penalty on top of income taxes, not to mention the penalty of leaving themselves with less money to retire on. And last quarter, a record 62,000 of the workers enrolled in Fidelity plans exercised that option, up from 45,000 in the second quarter of 2009. The number is just the latest in a string of indicators showing how financially stressed the middle class is, even as economic growth and corporate earnings have begun to creep back into the black.

Fidelity also says the number of workers taking out loans against their 401(k) holdings is at a 10-year high.