Author Topic: Do I include 401k in FI calculations?  (Read 2825 times)

Albatross

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Do I include 401k in FI calculations?
« on: July 30, 2017, 09:50:04 AM »
Sorry I know this question has been asked before but I can't find where it has been answered:

Should I include my mandatory retirement account (actually a Mandatory Provident Fund or 'MPF' account as I am based in Hong Kong, where a 'mandatory 401k' requires contributions from employer and employee), as part of my FI calculations?

As I understand it there's no way of taking your money out before 60 years of age. That being the case, it appears the money is basically useless to me until I hit a certain age, but if I am hoping to FI between 40 and 45 years of age, I'll have a couple of decades to consider before I can access the account.

Should I play safe and just assume my contributions to MPF goes inot a vaccum for a couple of decades?

irie

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Re: Do I include 401k in FI calculations?
« Reply #1 on: July 30, 2017, 10:09:37 AM »
What does financial independence mean to you? Define it.

If FI means that you are debt free, have 3-6 months of liquid expenses in case you lose your income and are still working as well as saving for retirement then no.

If FI means that you can retire early then you should include it in your income planning from the age you plan to withdraw it but should still have a plan from 40-45 years old to the age you plan to withdraw.

Without defined FI/goals as well as plan for income prior to having access then you can figure out if you include it and HOW you include it.

Just my $0.02.

kpd905

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Re: Do I include 401k in FI calculations?
« Reply #2 on: July 30, 2017, 10:40:47 AM »
As long as you think you'll be alive from age 60 on, then I would count it.

Cadman

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Re: Do I include 401k in FI calculations?
« Reply #3 on: July 30, 2017, 10:56:59 AM »
Albatross, if you're considering only FI, then I probably wouldn't consider the 401k, but for RE, then yes. Look up Roth Conversion Ladder for how to access your 401k funds without penalty before 59-1/2.

Fire2025

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Re: Do I include 401k in FI calculations?
« Reply #4 on: July 30, 2017, 11:30:13 AM »
I don't know anything about the 401k situation in Hong Kong.  But in america you can definitely get to your 401K money prier to 60 years old.  Just want to add that clarification because the term 401K is being used.

http://www.madfientist.com/how-to-access-retirement-funds-early/

Albatross

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Re: Do I include 401k in FI calculations?
« Reply #5 on: July 31, 2017, 12:45:48 AM »
Thanks All by Financial Independence I mean my investment income covers expected expenses, i.e. the point at which mandatory work becomes non-mandatory. I'm not a fan of the concept of RE as I think I'll "work" for the rest of my life on projects of some sort.

Sorry I used 401k as a bit of a clickbait (!) since most people on this forum are from the US and it's the closest thing to Hong Kong's 'MPF', which unfortunately is mandatory and cannot be withdrawn before 60.

Since my plan is to be FI (see definition above) by 40 to 45 (I am 30 now), the question was more geared towards whether my numbers as at age 40 to 45 should exclude my MPF contributions, since they cannot be accessed until a couple decades after my FI point?

One response above was: yes, if I assume I will live beyond 60. In this situation, it'll be a windfall at 60 - and that's why I have some reservations about including it as part of my 'financial state' at age 40 / 45.

yachi

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Re: Do I include 401k in FI calculations?
« Reply #6 on: July 31, 2017, 07:09:20 AM »
Do you want to continue to reside in Hong Kong after FIRE?  If you leave Hong Kong, you can access it before age 60.  If your balance is high enough, this could be something to consider.



(2) Permanent departure from Hong Kong. You must declare that you have departed or will depart from Hong Kong to reside elsewhere with no intention of returning for employment or to resettle in Hong Kong as a permanent resident, and provide proof satisfying the trustee that you are permitted to reside in a place outside Hong Kong.

Note: For scheme members who have previously been paid accrued benefits on this ground, accrued benefits WILL NOT be paid by trustees for all subsequent applications with a later departure date. The MPFA keeps a register of all scheme members who previously withdrew accrued benefits on ground of permanent departure from Hong Kong. Scheme members who make a false or misleading statement to trustees for early withdrawal of accrued benefits are liable to prosecution.

Fire2025

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Re: Do I include 401k in FI calculations?
« Reply #7 on: July 31, 2017, 08:06:44 AM »
Thanks All by Financial Independence I mean my investment income covers expected expenses, i.e. the point at which mandatory work becomes non-mandatory. I'm not a fan of the concept of RE as I think I'll "work" for the rest of my life on projects of some sort.

Sorry I used 401k as a bit of a clickbait (!) since most people on this forum are from the US and it's the closest thing to Hong Kong's 'MPF', which unfortunately is mandatory and cannot be withdrawn before 60.

Since my plan is to be FI (see definition above) by 40 to 45 (I am 30 now), the question was more geared towards whether my numbers as at age 40 to 45 should exclude my MPF contributions, since they cannot be accessed until a couple decades after my FI point?

One response above was: yes, if I assume I will live beyond 60. In this situation, it'll be a windfall at 60 - and that's why I have some reservations about including it as part of my 'financial state' at age 40 / 45.

I would use cFiresim to calculate your whole picture, MPF money at 60 included.  MPF is not a windfall, it's part of your financial picture. 

I think this is even more true if you plan to work your whole life.  If you want to separate MPF from investment income, to hedge your bets, in RE, that makes sense, but if you plan to work forever you don't need to hedge your bets, working is your hedge that you don't have to go back to work.

yachi

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Re: Do I include 401k in FI calculations?
« Reply #8 on: July 31, 2017, 07:50:33 PM »
Yeah, you should definitely count it.  Here's all you need to access it today:

1) Identity document (e.g. HK ID Card)
2) Claim form for payment of accrued benefits on ground of Permanent Departure from Hong Kong / Total Incapacity / Terminal Illness / Small Balance / Death  [MPF(S) W(O)]
3) Statutory declaration form [MPF(S) W(SD2)]
4) Documentary proof satisfying the trustee that you are permitted to reside at a place outside Hong Kong

Other than having to move away from Hong Kong, this looks much easier than using the 72(t) exemption to access 401(k) funds.

Albatross

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Re: Do I include 401k in FI calculations?
« Reply #9 on: July 31, 2017, 09:01:02 PM »
Thanks ppl - I think I'll include it since I don't know if I will stay here forever.

I think I also won't cut it so fine such that if I exclude my MPF contributions, I won't be massively drawing down on my principal - I think I'll have a sufficient buffer which will make the MPF more of a benefit than a necessity.

zoro

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Re: Do I include 401k in FI calculations?
« Reply #10 on: July 31, 2017, 09:13:32 PM »
when i do net worth calculations, i always include 401k and ira's etc, but i discount the value by the expected tax payment that i would have to make if i cashed now.
this also means that decisions on roth conversions or roth 401k contributions are more rational , and net worth neutral.

likewise for i bonds i discount by the expected tax payment, and appreciated securities by the likely capital gains. it gives a smaller number but a more realistic number for decision making.