Mortgaging the future in desperate times

Allison Linn Senior writer • Profile • E-mail

Laid off and facing a long job search, Bob Cundiff was worried about making ends meet.

Cheryl Ambruse needed a “breather” from her mortgage payments.

Jan Gentile lost her job and her family’s health benefits. She faced mounting medical bills on top of mortgage payments and other day-to-day expenses.

Although years away from retirement, all three turned to money they had meant to save for their golden years, either cashing out or borrowing against their retirement savings to pay more pressing bills. In doing so, they joined the growing number of Americans who are being forced to trade future comfort for more immediate needs because of the economic crunch.

A Hewitt Associates’ survey found that 6.2 percent of retirement account participants at large corporations had taken an early withdrawal as of Sept. 30, compared with 5.1 percent who reported taking early withdrawals in 2006.

A separate October survey by the American Association of Retired Persons found that 13 percent of Americans 45 and older had tapped into their retirement investments early.

The decision to dip into retirement funds early usually requires paying a heavy financial penalty. In addition, experts warn, the financial hit can be compounded by both the lost savings and the lost chance for interest income down the line.

“You really want this to be a last resort,” said David Certner, legislative policy director for the AARP.

But with the market down, the economy weak and the credit markets tight, some say they had little choice but to turn to their retirement funds.

Medical bills pile up
By this point in life, Jan Gentile and her husband, Jon, planned to be empty nesters, comfortably living in the house outside Birmingham, Ala., that they built themselves in 1998, and perhaps even traveling a little bit.

Michelle Williams for msnbc.com “We had to make ends meet,” Jan Gentile said of her and her husband Jon's decision.

Their plans changed dramatically when they decided to legally adopt their granddaughter, now 8 years old. But they were really thrown for a loop after Gentile, 56, lost her job in human resources last April.

Gentile and her husband, a sportscaster, 48, had always relied on her job for health care benefits. After she was laid off, the couple could only afford to cover health insurance payments on their own for a couple of months. Once they were without insurance, health care bills mounted, and the couple began to worry about paying other expenses. Their cars were in jeopardy and they fell behind on the mortgage to their dream house, which they also hope to eventually leave to their granddaughter.

“We had to make ends meet,” Gentile said. “We have a home to hold on to, we have a child to raise. We have medication to buy every month.”

Msnbc.com senior producer John Schoen answers your questions about retirement.

As the months dragged on and Gentile still couldn’t find a new job, they felt they had no choice but to cash in some individual retirement accounts. While they still have other retirement savings, Gentile thinks that decision, combined with the cost of raising a young child, means she will probably have to work past the normal retirement age.

“We were counting on those. We were building on those,” Gentile said of the retirement accounts. “We just thought that money would be there for us, and it was a real hard decision to make.”

In mid-September, Gentile was finally able to land a job that includes health care benefits, but the salary is much less than she was making before. As they work to get their finances back on track, the family has had to cut back on little luxuries like dinners out, trips to the movies and  buying new clothes.

One of the hardest decisions was to tell her granddaughter that she could no longer take horseback riding lessons because they couldn’t afford it.

“She loved those horseback riding lessons,” Gentile said.

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