As the last of his severance pay dwindled away in March, Brad Cleghorn of northwest suburban Marengo cashed out his 401(k) plan in order to pay his mortgage and feed his family.

Cleghorn is not alone. A Hewitt Associates study shows that 46 percent of workers with 401(k) plans who lost or switched jobs cashed the plans in, a trend that could lead to serious problems when younger generations of people working today reach retirement.

That's not the real problem folks.

Let me make this crystal clear:

Your 401k or IRA has near-absolute protection in a personal bankruptcy.  As a qualified retirement plan it cannot be seized by creditors if you file a Chapter 7 or Chapter 13.

The absolutely worst thing you can do is to cash out those plans.  This is not just about sabotaging retirement, although that's serious.

This is the "human face" on the games our government has played with bailing out banks and other big financial institutions.  You, "Joe Six Pack", hasn't been helped at all, and bill collectors and others will even "suggest" that you cash in retirement funds so you can pay them! 

Don't do it!

Go see a qualified CPA and/or Bankruptcy Attorney.  Yes, they'll charge you $100 or so to spend a half-hour going over your circumstances and personal situation.

But it is almost never the right move to cash in a qualified retirement plan to get through an unemployment circumstance, especially given what is going on now with the official policies of our government - policies that have been and continue to intentionally damage the purchasing power of your earnings and savings.

Our nation has succumbed to short-term thinking to an extreme degree.  Here is what one of the people said in the article:

"So we made a decision it was necessary for us to keep the lights on, to keep food on the table for the kids. We have to do what we have to do, and whatever penalties we face on next year's tax return, we'll worry about that next year."

Except that your tax hit is due in April.  Where will the money to pay it come from?  Even if you find another job, will you be able to come up with the penalties and clawback on the tax exemption you got on the gains and contributions?  That's unlikely, and yet it will be due in April, and the IRS will come after you if you don't pay them.

Your credit card company will call you incessantly and ruin your FICO score if you don't pay them.  Eventually your mortgage company will come foreclose on your house, although these days they're not even bothering with that as most of the time the house isn't worth as much as the mortgage - there are people who are living in their house without making a mortgage payment for more than a year!

But if you don't pay the IRS they will not only trash your credit they will come after you, and they don't play nice.  They can and will intercept any refunds you get and even freeze your banks accounts.

Six out of 10 employees in their 20s took the money, compared with one-third of those in their 50s, according to the study.

Six out of ten?! 

This is a freaking disaster folks. 

Don't do it.