Withdrawing money from a 401(k) prior to retirement age goes against the advice of most financial experts, yet a record number of people are dipping into funds they've set aside for retirement to pay for immediate needs.

Fidelity Investments, one of the nation's largest suppliers of retirement plans, recently reported a sharp increase in the number of 401(k) participants who tapped their retirement accounts for hardship withdrawals between April and June this year.

About 62,000 of Fidelity's 11 million account holders requested hardship withdrawals compared with 45,000 who did so during the same period last year. The top reasons were to prevent foreclosure and eviction, pay for college and purchase a primary residence.

The average age of people who took a loan or hardship withdrawal was between 35 and 55 years. The average loan amount was $8,650. The company did not disclose the average hardship withdrawal amount.

"The unfortunate impact of taking money out of your 401(k) plan is that it does set you back for retirement," said Carrie Coghill, president of D.B. Root & Co., a Downtown wealth management firm.

For a generation of workers already living paycheck to paycheck, taking loans and hardship withdrawals from their company-sponsored retirement accounts may be the only source of savings they have to bridge the growing gap between their earnings and the cost of living during the economic downturn.

The Fidelity report brings to light how ill-prepared many people are to retire on what they have saved throughout the course of their working lives.

"The popular idea of working until age 65 and retiring is fading fast for many Americans," said Thomas Casey, a certified financial planner at Casey, Thomas & Associates in Shelton, Conn. "It's a heart-breaking cycle."

Hardship withdrawals are allowed in only those cases in which the plan participant can show they have no other source of savings to pay for a need that is imminent and dire, such as unreimbursed medical expenses, education costs, funeral costs, preventing foreclosure, eviction or buying a primary residence.

The Internal Revenue Service code permits hardship withdrawals only after a person has obtained all nontaxable loans available under the 401(k) plan and it prohibits them from contributing to their 401(k) plan for six months after the withdrawal.

Like 401(k) loans, hardship withdrawals are subject to income tax and a 10 percent withdrawal penalty if the person is not at least 59 1/2 years of age. Unlike 401(k) loans, however, hardship withdrawals are not required to be paid back.

"We have many clients that are unfortunately finding themselves in this circumstance for several reasons," said Jonathan Gassman of Gassman & Golodny, a wealth management firm in New York.

"We have a client who had in excess of $1 million in his retirement account when he lost his job and was forced into early retirement," Mr. Gassman said. "But he burned through the money so fast he is now faced with going on food stamps."

Shomari Hearn, a financial adviser at Palisades Hudson Financial Group in Fort Lauderdale, Fla., said the Fidelity report was clear evidence of the slow economic strangulation of the middle class -- but also an indication that people are probably living beyond their means.

"Home equity is no longer an option because of the significant decline in home values," he said. "Now they are basically looking at their 401(k) as their last option.

"The harsh reality is most baby boomers will need to postpone plans for retirement, and many may never be able to fully retire if they plan to live comfortably during their golden years."

A recent survey of 401(k) hardship withdrawals conducted by the Transamerica Center for Retirement Studies also supports the findings made by Fidelity Investments.

The nonprofit corporation found the primary reason for taking 401(k) withdrawals was to prevent being evicted from a principal residence, and that costs and payments related to a worker's primary residence grew as reasons for them needing to take hardship withdrawals.

"The world we live in today is very different," said Ornella Grosz, a retirement planner in Duluth, Ga. "We haven't saved the way we should have when times were good. Now people are losing jobs, and they have nothing to fall back on.

"It's unfortunate because this financial crisis hit some people who are close to retirement. Now they have to either play catch-up or work longer. "

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