U.S. middle class taps nest eggs to keep homes

By Nick Carey

CHICAGO (Reuters) - Trapped by rising mortgage payments and falling house values, a growing number of squeezed middle-class U.S. homeowners are tapping into their treasured retirement nest eggs to ward off foreclosure.

"This is definitely an issue we've been hearing about from our members," said Kevin Stein, associate director of the California Reinvestment Coalition, which represents 250 nonprofit groups and public agencies in the state.

"It does seem the crisis is impacting a broader segment of America, and it clearly calls for broader solutions than what we have so far," Stein said.

Apart from being a fresh sign that the housing crisis has spread up the U.S. income ladder, tapping tax-deferred savings accounts like 401(k) plans could have profound effects on taxpayer welfare, social security and employment patterns, economists and financial advisers said.

"I think this means we'll see some baby boomers having to work well into their 70s to make ends meet," University of Maryland economist Peter Morici said.

Before 1980, most U.S. workers relied on so-called defined benefit or "pension" plans managed by their employers. Those were meant to supplement government Social Security payments, which first become available to workers at age 62.

But pensions have been gradually replaced by 401(k)s, or defined contribution plans that let employees decide how much they want to contribute. They can also withdraw funds, as this encourages younger workers to contribute, experts said.

According to a March 2007 survey, the U.S. Bureau of Labor Statistics found that 55 percent of U.S. workers had access to defined contribution plans and 43 percent were participating.