AMERICAN workers are changing the way they think about their retirement accounts, dipping into them for short-term spending in much the same way homeowners have tapped into equity.
Nearly half of a group of 200,000 workers who left their jobs in 2004 cashed out a majority of their retirement plans rather than rolling them into other retirement accounts or leaving them parked with their former employers, according to Hewitt Associates, which provides record-keeping services for retirement plans covering about 5 million workers.
"Too many workers are not looking at their 401(k) savings as long-term in nature, but are instead using termination of employment as an opportunity to spend," said Lori Lucas, Hewitt's participant research director. "With fewer workers tending to remain at one company until retirement, employees may become 'serial consumers' of their 401(k) savings."
The 45 percent who cashed out weren't just young people with low balances. More than 42 percent of workers in their 40s, along with 66 percent of workers in their 20s, took the money and ran, Hewitt reported.
Nearly three-quarters of people with plan balances of less than $10,000 took the money, but a third of employees with between $10,000 and $20,000 also cashed out, Hewitt officials said, a disturbing trend.
Why are they doing this? Some believe the balances are so low they're not worth rolling into a new retirement account. Some have already borrowed from their plans and have to pay the loans back. A separate Hewitt study found nearly a quarter of employees with plans have outstanding loans, with an average balance of 18 percent of the account.
Others cash out to pay current bills, and some worry they'll need the money if they can't find a new job quickly. Some use it to finance vacations between jobs, or even for time off to discover new career directions. In short, for myriad reasons.
More simply, though, it's because they can. Employers today are far more likely to offer portable 401(k) plans instead of traditional defined-benefit programs. And increased job-hopping creates more occasions to be tempted with a lump sum.
Homeowners have experienced the same thing as banks have stepped up marketing of home-equity lines and offered easy-to-use ways to access those lines. By 2001, nearly a third of homeowners with mortgage debt were using part of it for something other than the mortgage, according to the Federal Reserve's most recent consumer finances survey.
I chatted via e-mail with a few Your Money readers about why they tapped their retirement accounts after a job change. Their answers were easy to understand: One needed to pay bills. Another was frustrated at the lack of investment growth in a low-balance account.
Other workers view job change as an important time for building new skills and freshening career aspirations, activities that tend to get pushed aside when we're busy with the day-to-day activities of a job.
It may sound counterintuitive to spend down workplace savings in the name of career advancement, but these workers believe the reflection and training time could pay off in higher and more stable long-term salaries later.
Kathy Stoughton, 43, cashed out 20 percent of her retirement plan when she left a big investment firm about a year ago. She took eight months off before starting a job as a financial counselor for Chicago-based ComPsych Corp., a benefits consulting firm.
Though she routinely advises workers to avoid cash-outs, she did it herself as a way to start a sideline business - an online magazine about wine collecting, www.greatwinefinds.com - and consider future career paths.
"It was an opportunity to teach myself new skills. With more midlife career changes happening today, I wanted to use the opportunity for career discovery," she said. "Is it an ideal situation? No, it's a risk."
Indeed. Hewitt officials said the early dipping will mean longer working lives as employees struggle to make up for retirement-savings shortfalls.
A new benefits law will require companies to maintain more plans (those worth $1,000 or more) or roll them into individual retirement accounts. For now, employers can cash out plans worth less than $5,000 if departing workers don't specify a rollover retirement plan - and 87 percent of employers do have force-out provisions, Hewitt estimates.
Changing force-out provisions might not stem the tide, Lucas fears, pointing out that even when employees are permitted to leave plans alone, only about half of them do.
"We were hoping inertia might take effect and employees would leave these plans alone. We were surprised at how many are tempted to take the money," she said.
If you feel you must take the money, Stoughton suggests rolling the plan over to an IRA, then withdrawing only a portion at a time to avoid paying taxes on the entire amount.
E-mail Janet Kidd Stewart at email@example.com.