Millions of Americans who lost their jobs during the recession are faced with the likelihood of being out of work for a long period of time, as the unemployment rate shows little sign of improving soon. Strapped for cash, many are tempted to tap into their 401(k) retirement accounts.

Although the 401(k) can be a lifeline for unemployed workers going through a financially difficult time, the fact that loans and cash-outs are allowed illustrates a central weakness in relying on it for retirement security.

"Over the last 20 or 30 years, we've had a shift in the retirement world," said Thomas Croft, executive director of Pennsylvania's Steel Valley Authority and author of "Up From Wall Street: The Responsible Pension Alternative." "More companies moved away from defined benefit plans to defined contribution plans.

"That means there's really no promise of retirement security. The risk was moved to the individual. By putting their money into mutual funds, they could build savings if the market was friendly. But the problem was the 401(k) was never enough to guarantee a secure retirement."

Nearly half of all workers who left their jobs between 2005 and 2008 decided to cash out their 401(k) accounts instead of rolling their money to a qualified IRA or leaving it in their former employer's 401(k) plan, according to a study by Hewitt Associates, a global human resource firm.

"Employers and financial advisers have been increasingly vocal about the negative impact that cashing out a 401(k) plan has on retirement savings," said Pamela Hess, Hewitt's director of retirement research.

"But employees don't seem to be getting the message."

Hewitt's study of 170,000 workers who terminated their employment in 2008 showed 46 percent cashed out their company-sponsored retirement plans.

A similar Hewitt analysis in 2005 showed almost identical results: 45 percent of laid-off workers cashed out.

Though it seems like an simple choice to withdraw money from a retirement account if money is tight, it carries a hefty price.

Cashing out a 401(k) prior to age 59 1/2 automatically triggers a 10 percent early-withdrawal penalty as well as federal and state income taxes.

For an account balance of $15,000, that could amount to a $6,000 bite. What's worse is the lost opportunity for the account to potentially earn almost $70,000 in tax-deferred growth assuming an 8 percent annual return over 20 years.

Frank Todisco, senior pension fellow for the American Academy of Actuaries in Washington, D.C., said cashing out a 401(k) jeopardizes a worker's future financial security, particularly if that worker does not have a traditional defined benefit pension plan.

"The 401(k) system is trying to serve more than one master, which will make it less efficient in providing for retirement," Mr. Todisco said. "The problem is massive leakage of money from the system prior to retirement."

Named for an obscure section of the federal tax code, 401(k)s became the dominant retirement savings vehicle for Americans as more companies abandoned traditional pension plans.

Because retirement can seem like a long time away, people who need money do not always appreciate the risk of not having enough saved when their working days are done.

"Human nature is to focus on the short term rather than the long term," said Mike Alfred, CEO of BrightScope, a San Diego company that rates the performance of retirement plans. "That probably will not change unless we succeed as a society in making the effects of not saving for retirement more real and visceral for young savers."

Hewitt's study showed younger workers were more likely to cash out than those who are older and more tenured. Sixty percent of workers in their 20s took a cash distribution compared with just 34 percent of those in their 50s.

The analysis also found a direct correlation between 401(k) plan balances and cash-out rates.

Just 8 percent of workers with plan balances of $100,000 or more cashed out and 17 percent of workers with plan balances between $20,000 and $99,999 did so.

The number of cash-outs among employees with smaller balances is much higher.

Almost half - 45 percent - of workers with balances between $1,000 and $5,000 took a cash distribution, while 85 percent of those with balances under $1,000 cashed out either voluntarily or due to force-out provisions.

"It's easier to cash in a 401(k) than to sell half your house if you have an immediate need for money, but the 401(k) should be a last resort," said Jon Hughes, a partner at Schnader Harrison Segal & Lewis, Downtown.

"If you've got to put food on the table, that's one thing. But to do it to make payments on a sports car is not a good idea," said Mr. Hughes, whose firm advises companies and individual investors on 401(k) issues.

The cash-out numbers are likely to increase this year.

As long as the unemployment rate stays in double digits, 401(k)s may continue to be the most substantial form of liquid assets many workers have, in light of the historic low savings rate.

"In other downturns, you could find work in a relatively shorter time of three to six months," said Rick Chess, president of American Realty Capital Markets in Richmond, Va. "It could take a year now. It will take a longer time than normal, and you are looking at a 50 percent drop in income. "Neither of these situations are good for average Americans because most don't have a rainy-day fund that can carry them more than 60 days."

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