I hate to be the bearer of bad news, but there is no Santa Claus, Tooth Fairy, or Easter Bunny, and it's impossible to "recession-proof" your 401(k), because no sector is immune from an economic slowdown. You can, however, take some reasonable precautions to limit the damage.

For one thing, stay the course. Unless you are in dire financial straits, don't cut back or quit contributing to your retirement fund. The stock market is your friend over the long term, though over the past few months it hasn't been much of one. Make sure that you are well-diversified and don't be afraid to get out of funds that aren't performing well and seem to have little chance of recovery. Furthermore, avoid the temptation of doing anything rash like liquidating your 401(k) because of worries about the market, since the tax consequences are severe.

Figuring out why a fund is performing poorly isn't difficult given the huge amount of financial information on the web. Remember, historically some sectors in the stock market such as health care and consumer staples such as Coca-Cola do well when the economy slumps. IBM and other companies with large overseas business also are being helped by the weak dollar. There are losers, such as financial and industrial stocks. Even tech companies, including Google, are in Wall Street's dog house. No company, though, will escape the recession unscathed, and anyone who thinks otherwise is kidding themselves

The stock market's wild gyrations over the past few months have frightened even hardened Wall Street investors, so it's understandable that individual investors are petrified. But the difference between pros and amateurs in the investing game is discipline. They look at their portfolios the way that a boss looks at their employees, and they get rid of poor performers. Under no circumstances will they fall in love with stocks or out of love with them. The same goes for funds.

A survey of over 1,800 finance chiefs around the world has found that employees are more frequently using retirement funds to pay their bills. So-called "hardship withdrawals" from 401(k)s and other retirement accounts have been increasing at 20% of the companies surveyed by Duke University and CFO Magazine.

Finance gurus are attributing the hardship withdrawals to bad credit markets and increasing costs of living. They say that employees are dipping into their retirement funds early to make mortgage payments and avoid filing bankruptcy.

But using retirement funds before you reach retirement age comes with a big price. While the law in the U.S. is set up to allow access to the funds in certain situations, in many cases, the withdrawal will be subject to interest and penalties.

On average, taxpayers can lose about 50% of their withdrawal to federal and state taxes and penalties. So if someone withdraws $20,000 to catch up on a mortgage and other bills, they can expect to take a hit of around $10,000 on that money when tax time rolls around.

For this reason, consumers should only do a hardship withdrawal if they are in dire need of the funds. Otherwise, I recommend stopping all new contributions to retirement funds, and using the money that would have gone into your 401(k) to help ease your financial burden.

Forensic accountant Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations through her company, Sequence Inc. Forensic Accounting. The Association of Certified Fraud Examiners honored Tracy as the 2007 winner of the prestigious Hubbard Award and her first book, Essentials of Corporate Fraud, will be on bookshelves in March 2008.