More people are tapping into retirement accounts despite the negative financial consequences, but wind up struggling to pay their mortgage anyway, said the Consumer Credit Counseling Service (CCCS) of Greater Atlanta. 

The counseling agency found that 29.6% of the people who called the nonprofit agency for foreclosure prevention counseling received an early distribution from their 401(k) or other retirement plan within six months before contacting the agency.

"Our hope is people will seek credit counseling to discuss all of their options before taking the drastic step of depleting funds they’ve set aside for retirement," said Suzanne Boas, president of CCCS of Greater Atlanta. "The fact that people are taking early withdrawals and falling behind on their bills again indicates they only got a temporary solution to their problem."

The agency conducted the survey to determine how the current economic crisis was affecting the plans of clients who set aside money for retirement. The agency said 378 of its foreclosure prevention clients responded to the survey.  Among the survey’s other findings:

• Nearly half of foreclosure prevention clients are "very worried" that they will not have enough assets to retire on and 15% say they assume they will not be able to afford to retire.
• In contrast, fewer than 15% of bankruptcy clients reported withdrawing money from a retirement plan in the past six months. Retirement plans are among the assets that can be protected in a bankruptcy, so these clients appear to have chosen to protect their nest egg even though the immediate financial consequences of bankruptcy are painful.

"In the past year we have seen a sharp decline in the net worth of our clients, even as their average income levels have increased," Boas said. "It is a tragedy of this financial crisis that many Americans are losing value in both their homes and retirement funds, which are main ways to build personal wealth for most of us."

More than 90% of the 378 agency clients who responded to the survey said they are younger than 59 1/2, meaning the distribution will likely be taxed as income and also incur a 10% penalty.

Identical surveys were sent to clients who came to the agency worried about paying their mortgage, bankruptcy counseling and for budget and credit counseling; the latter type of counseling is typically designed for people with too much unsecured debt, such as credit cards. The email survey was conducted in late March.

Survey by CCCS of Greater Atlanta: Nearly 30% of Homeowners Seeking Counseling Recently Tapped Retirement Funds Early