In another sign of widespread financial distress, more people are tapping into their 401(k) and filing for Social Security earlier than intended.
On Friday, mutual fund giant Fidelity Investments reported that a record number of workers took hardship withdrawals from their 401(k) retirement accounts in the second quarter. And, it said, 401(k) loans have reached a 10-year high.
Earlier, the Social Security Administration reported a surge in people filing for payments at the minimum age of 62, rather than waiting until later.
There's no mystery as to what's going on, say experts: 6.5 million people have been out of work for more than six months, and millions more have seen their incomes sliced by pay cuts and reduced hours.
"People have to have a source of income," said Jeff Witherspoon, executive director of the Consumer Credit Counseling Service in Wichita.
Even with repeated extensions of unemployment benefits, say experts, many people have exhausted their savings.
Brad Bechtel, vice president at Allen, Gibbs & Houlik, said he has seen loans in the 401(k) plans his company administers rise 20 percent in the past year and hardship withdrawals rise 15 percent.
"We started seeing that swing upward immediately after we started hearing about layoffs," he said.
Tapping a 401(k) for emergency funds isn't a good idea, he said.
On the loans, workers repay themselves, collecting the interest. But the loans became a hidden bomb for many workers in the past year.
If a worker loses a job, the outstanding debt must be repaid immediately. If the loan cannot be repaid and the borrower is younger than 59 1/2, it is converted to a hardship withdrawal.
Hardship withdrawals cause even bigger problems, he said, the biggest of which is that the federal government will ask for 25 to 40 percent of it in taxes. And many won't set aside money to pay that tax, he said.
"Come April, a lot of people are going to be shocked," Bechtel said.
A related trend is the surge in retirements.
In 2009, new applications for Social Security increased nearly 23 percent, but it had expected a 15 percent rise based on estimates for the number of baby boomers hitting 62, the agency reported.
The difference is a surge in people retiring because they can't find work, the IRS said.
The problem, financial advisers say, is that those who retire at the minimum age lock in lower monthly payment over the length of their retirement. Most experts advise waiting as long as possible to file for benefits in order to maximize monthly benefits.
While dipping into retirement funds, either their own or the U.S. government's, signals a certain level of desperation, it could be worse.
Last summer as the full shock of the layoffs hit Wichita, the United Way of the Plains saw nearly 500 people a month at its laid-off workers center. The center connects people with social services and arranges to pay for basics such as rent and food, if needed.
As the months went on, the number of new people showing up every month kept dropping, said United Way spokesman Delane Butler.
But United Way officials don't think it's because the underlying problem has been solved, he said. People need real income, not unemployment checks or borrowing from their 401(k).
"When the unemployment finally runs out, we think we'll see our numbers rise again," he said.