Over the past couple of years my youngest sister, J.E. McNeil, has been raiding her retirement accounts to put her son through college. Now I worry about what kind of financial future she’ll have in retirement.

She’s hardly alone. Many workers find that they have to tap into the money they had hoped to have to supplement Social Security in retirement.

And recently, with unemployment high, those numbers have been going up. An August survey by Watson Wyatt Worldwide of 201 U.S.-based companies found that a third of them have seen both an increase in hardship withdrawals and loans by savings-plan participants.

Normally, the money you put aside for retirement is off limits—or at least, withdrawals are made undesirable by triggering penalties and taxes. But there are exceptions. Both IRAs and workplace retirement savings plans will permit withdrawals under certain circumstances.

For instance, you can withdraw funds from a 401(k) plan without penalty if you have medical expenses not covered by insurance that exceed 7.5 percent of your income. With IRAs, you can withdraw without penalty for expenses such as your first home, health insurance or college expenses for you, your spouse, your child or your grandchild.

And that’s just what J.E. did. She felt like she didn’t have a choice.

J.E. is the executive director of a nonprofit group, where she pays the bills, the staff’s salaries and, last of all, her own salary. Even in a good year, she’s used to living pretty close to the bone. And this has not been a good year for either the economy or nonprofits.

$58,000 less for retirement

My nephew Russell spent his first two college years at the University of North Carolina at Asheville, where he was able to pay the equivalent of in-state tuition by virtue of a federal law that helps children from D.C. attend state colleges.

But he found the right fit for his final years at pricier, private George Washington University. Still, by pitching in $58,000 for four years of college, J.E. thinks she has done reasonably well, and she’s right. The average cost of tuition and fees at a private four-year college is $26,273 for the 2009-2010 school year.

Russell’s dad died when he was 8, but his dad’s family has helped with his college costs. Russell qualified for $47,000 in grants and loans this year, and he also works. But to contribute her share, J.E. has had to deplete her retirement savings accounts. And though she is still in her 50s, she doesn’t have a huge amount of time to rebuild them.

One of the worst characteristics of the voluntary retirement savings system is that it’s tilted in favor of the well-to-do and against those who struggle with financial hardship. Among other things, tax breaks for retirement savings increase with your income tax bracket.

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