20 years until retirement with no pension or savings...

[pacmon]

Personal details

Age: 47
Spouse’s/Partner's age: 49
Number and age of children: Four children: 12, 9, 8 and 4

Income and expenditure
Annual gross income from employment or profession: €106k
Annual gross income of spouse: €0
Monthly take-home pay: €6,000
Type of employment: Private sector - permanent full-time

In general are you:
(a) spending more than you earn, or
(b) saving?
- Barely breaking even every month, very difficult to save for pension or childrens' education

Summary of Assets and Liabilities
Family home worth €900k with a €334k mortgage remaining
Cash/savings: 0
Defined Contribution pension fund: 0
Company shares: 0

Family home mortgage information
Lender: Avant - 20 Year fixed term
Interest rate: 2.50%
If fixed, what is the term remaining of the fixed rate? 20 years.
Monthly repayments: €1769

Other borrowings
Home Improvement Loan (40k)
Lender: Avant - 7.5 years remaining, €30k balance remaining
Interest rate: 5.9%
Monthly repayments: €500
Additional monthly payments: €300 (attempting to clear entire loan early - in ~3 years)

Do you pay off your full credit card balance each month?
YES

Other savings and investments:
- No investments
- Saving €50 a month for each child, deposited directly into their BoI Child Saver accounts, 0.25% interest rate (for future education)

Do you have a pension scheme?
No

Do you own any investment or other property?
No

Other information which might be relevant

Life insurance:
Yes, cover for 400k+

What specific question do you have or what issues are of concern to you?

We have roughly 20 years until retirement age, and neither of us have a private pension. My employer has just introduced a company scheme, due to start in a few months, where they match up to 3% of an employee contribution - so I will be availing of this, and would hope to contribute even more. My wife is currently unemployed, due to looking after the children, although it is likely she will need to return to work so that we can maximise pension contributions and savings for our children's future education. We have a lot of catching up to do, and it appears we'll need to start lumping thousands into savings aggressively as soon as possible.

Pension Question
With 20 years until retirement age, we need to put as much into private pensions as possible. I'm assuming that the best way to get the most 'mileage' for our money is to be with a company scheme where the employer also matches a certain percentage, thereby building up the fund much faster than if it were just a private pension? Would this (company scheme with company matched contribution) be considered the fastest and most optimal way to build up your pension fund?

Education Fund Question
We are not saving enough for our children's education at the moment. The Zurich Insurance "cost of college calculator" estimates we should be putting at least 1k monthly into an investment fund. We're currently only saving 200 euro into child saver accounts, and the money isn't growing. We need to increase payments and move the money somewhere where it will grow. Would a fund with Zurich/Irish Life/other be the best way to go to maximise the return on the college savings?


Thanks for reading.

 

[Brendan Burgess]

Home Improvement Loan (40k)
Lender: Avant - 7.5 years remaining, €30k balance remaining
Interest rate: 5.9%

- Saving €50 a month for each child, deposited directly into their BoI Child Saver accounts, 0.25% interest rate (for future education)

So you are borrowing money at 5.9% to put it on deposit at 0.25% ?

This makes no sense.

Don't compartmentalise your savings and finances generally.

The best way to provide for your children's future is to maximise your wealth.
The best way to maximise your wealth is to pay off your expensive borrowings as quickly as possible.

So cash the savings plans and pay it off your Avant loan.

Brendan

 

[Brendan Burgess]

Monthly repayments: €500
Additional monthly payments: €300 (attempting to clear entire loan early - in ~3 years)

- Barely breaking even every month,

- Saving €50 a month for each child, deposited directly into their BoI Child Saver accounts, 0.25% interest rate (for future education)

Monthly repayments: €1769

You are doing much better than barely breaking even.

You are paying €1,000 a month off your mortgage capital.
You are paying about €650 off your home improvement loan capital.
You are saving €200 a month into the kids' fund.

So you are saving or your wealth is increasing by about €1,850 per month.

That is not bad given that you have chosen to have 4 kids and to have your wife work at home.

You have made life choices. They are more important than financial choices.

Brendan

 

[Brendan Burgess]

With 20 years until retirement age, we need to put as much into private pensions as possible. I'm assuming that the best way to get the most 'mileage' for our money is to be with a company scheme where the employer also matches a certain percentage, thereby building up the fund much faster than if it were just a private pension?

Absolutely, put in the maximum which your employer allows.

But don't put in any more for the moment.

Your clear priority is to pay off the 5.9% home loan.

When that is done, then review where you are going in terms of whether to overpay the mortgage, contribute more to a pension, or build up a savings fund.

But that is 3 years away. Come back in three years and do another review then.

Brendan

 

[pacmon]

Thanks so much for the advice @Brendan Burgess - very very helpful. Makes complete sense to get rid of that home loan as soon as possible, and we will save a significant amount by not having to pay all that interest. Also nice to hear that we're doing better than it feels like we're doing, things are tight be we are managing it.

I think we'll change direction with the savings asap, and pay off a large chunk of the home loan immediately. And over the next couple-few years, try to pay off as much as possible with additional payments each month. With any luck, we might be able to get rid of it in a couple years or less, and then be free to explore the other options (more pension, investments, etc) - and we'll look forward to getting to that point sooner than expected. Thanks again.

 

[Sarenco]

Family home worth €900k with a €334k mortgage remaining
Cash/savings: 0
Defined Contribution pension fund: 0
Company shares: 0

You may not want to hear this, but I would query whether you can really afford to live in a €900k house.

If you moved to a €500k house, you could clear all your debts and start making meaningful savings for your retirement and your kids' education.

I think this is a classic case of having "too much house" relative to your income.

 

[Brendan Burgess]

Hi Sarenco

Interesting point.

But would they not be better off staying in the house and trading down when the kids are gone?
At the moment, it's costing them about €400k @2.5% or €10k a year in interest for the "extra house" - assuming house prices remain stable over the next 20 years.

Of course if house prices fall, the cost will be a lot greater. If house prices rise by 2.5% a year, the cost will be zero.

Brendan

 

[Sarenco]

But would they not be better off staying in the house and trading down when the kids are gone?

I don't think so Brendan.

The main reason is the OP would miss out on years of maximising tax relief on pension contributions.

The OP is approaching 50 with zero pension savings. He should really be contributing 25% of his salary to a pension scheme but I don't see how he could afford to do that while carrying material debts and with 4 kids to raise.

If he trades down to a €500k house, he could clear all his debts and comfortably build up an education fund for the kids and maximise his pension contributions.

IMO something has to give and the obvious answer to me is to trade down to a less expensive house.

 

[Brendan Burgess]

the OP would miss out on years of maximising tax relief on pension contributions.

But the tax-free growth in the value of the property counteracts that to some extent.

Brendan

 

[Clamball]

6000 - 1768 - (500+800) - 200 = 3232
Then you have childrens allowance + 560

So your spending apart from mortgage & home loan & kids savings is 3793.

Can you estimate your other costs, food, car(s), fuel, insurance, phones, tv, sports etc. Are you looking at all your costs, and tracking where your 3.8 grand is going every month. What kind of cars do you have, value, age? Replacement plans?

Are you taking a holistic view of your whole finances? Even if you broke it all down it might be helpful to see where that money is going. So track it for a month and come back. (I know late August, early September are very speedy months with kids).

But we will all have to be watching our costs this winter with fuel and changing our behaviours so throw in some other lifestyle changes too.

Definitely join the pension and match the company spend.
Get rid of the loan as fast as you can.
Then reassess how much you can maximise into your pension.
If you were mortgage free in 6 years then you could use that €2600 that you are paying in loans to fund that third level education, just paying each month from your wages, so there is some merit in the idea of downsizing.

 

[NoRegretsCoyote]

Personal details

Age: 47
Spouse’s/Partner's age: 49
Number and age of children: Four children: 12, 9, 8 and 4

You have a housing need for six people which means you need a big house.

Summary of Assets and Liabilities
Family home worth €900k with a €334k mortgage remaining

I don't know where you live, but a €900k house is a big house in all but the most expensive parts of Dublin, and a very big house anywhere else.

I agree that you probably have too much house given your age and complete lack of pension savings. Moving to a €600k house would nearly eliminate your debt, would free up at least €1k a month in cash flow, and would allow you to get closer to the 25% contribution possible for your age.

Education Fund Question
We are not saving enough for our children's education at the moment. The Zurich Insurance "cost of college calculator" estimates we should be putting at least 1k monthly into an investment fund. We're currently only saving 200 euro into child saver accounts, and the money isn't growing. We need to increase payments and move the money somewhere where it will grow. Would a fund with Zurich/Irish Life/other be the best way to go to maximise the return on the college savings?

A lot depends on where you live and whether kids can live at home during college. I think the best investment you can make is to pay down debt and/or make pension contributions as these returns are guaranteed and tax free. Then - depending on circumstances - you can take the foot off the pedal a bit to fund your children's education from ongoing income. Your youngest will be ten by the time your first child is in college so your spouse should be able to re-enter labour force by then.


But in the short term I think the best approach would be to have less house, less debt, and more pension. I'm not going to speculate on house prices, but I would have zero regrets downsizing in 2022 if I wanted to maximise equity withdrawal.

 

[Brendan Burgess]

I think that downsizing now is too drastic a step.
On the other hand, if they were living in a €500k house I would advise against trading up to a €900k house.

@pacmon
When do you expect your wife to return to paid employment?
How much will she be earning?
Do either of you have a likelihood of an inheritance at some time in the future?

Sure you can clear your debt by trading down by €400k.
But would that come with increased costs in terms of commuting?
Is the house convenient to college which would save you on college accommodation costs and hassles?

Instead of paying €2,500 a month in loan repayments, you could contribute €25,000 a year to your pension fund and get 40% tax relief, so the real cost would be €15,000.

But when you have the €30k home improvement loan paid off, you will be able to contribute €800 a month to your pension or €10,000 a year.

So downsizing now would allow you contribute an extra €15,000 a year to your pension or €20,000 from the age of 50. You get an immediate "return" of €8,000 tax relief. But your extra €400k of house needs to rise by only 5% a year to match that. Of course, house prices could fall as well.

I wouldn't rule out trading down and it's an option worth considering. But unless your current house is unsuitable and you can find a more suitable house for €500k, I would not do it for the moment.

Brendan

 

[PGF2016]

Putting the financial stuff aside what would be best for your quality of life? If you could get a suitable property for 5/600k and clear all your debts would that take the pressure off and allow you to live a little more?

 

[Peanuts20]

There are some basics you should also do here.

• 
  
• Ensure your will and guardianship plans are up to date (just in case)
• Given your wife's employment position has or may change, do a full review of tax credits to see if they are at the are being used to the best effect and also, if not done already, consider a tax return or claim for medical expenses for the last few years.

I wouldn't worry about downsizing, not with 4 kids who will soon be 4 teenagers, you'll need the space. You can always consider trading down in 10 or 20 years time or when they have moved out.

I would start the pension now, purely to get started on it but focus on clearing the loan

 

[NoRegretsCoyote]

I wouldn't worry about downsizing, not with 4 kids who will soon be 4 teenagers, you'll need the space. You can always consider trading down in 10 or 20 years time or when they have moved out.

I think that depends on OP's circumstances. A €900k house could be surplus to requirements even for six people depending on location. He could be paying a premium for a vanity address.

 

[pacmon]

Hi @Sarenco @Brendan Burgess @Clamball @NoRegretsCoyote @PGF2016 @Peanuts20

Thanks for all the replies, I appreciate everyone taking the time to share opinons and advice on our situation. It's all very helpful to look at all the different angles. I'll try to respond to all the queries/comments.

On the affordability of the current house - I have questioned that myself, but never really considered it a major issue. Our mortgage is 3.15 times my gross salary, so it's bit under the new Central Bank lending loan-to-income limit. We moved into this house four years ago, and the purchase price was a lot less (about 70% less) than the current valuation. Prior to this house, we were one of the cases in the tracker scandal, and fought for years to get our money back from the bank - and after this past move, the appetite to move again isn't all that great to be honest.

The house is in Dublin, and it's not huge, but it works. We've been in the area for over 15 years, our kids are part of the community with football clubs and other extra curricular activities, so it's comfortable and we really love it here. It's a short drive or cycle to the schools, I'm a short distance from the office on public transport, and there are lots of 3rd level colleges to choose from when the kids reach that age, plus they could live at home if the end up going to college in the area. One of our kid's has a additional needs as well, so it's been very handy to be close to the various Children's Hospitals and clinics in Dublin.

We manage our family budget in a large spreadsheet, every penny is accounted for from the moment I get paid each month. We change gas/electricity/broadband providers every year on the exact day the contract is up to keep costs are a bare minimum. Shop at discount supermarkets such as Lidl to keep costs down. Two cars in the household, both over 10 years old. Nothing fancy, no frills, no crazy expensive purchases, food is always on the table and bills/loans always paid, one "budget" holiday once a year... but yes, it is tight, especially with the cost of living these days.

The idea of moving again to be mortgage free and free up all that extra cash is appealing, but also daunting and seems quite drastic at the same time. Have to change everything for the kids; schools, clubs and circles of friends that they are already comfortable in. All the appointments/consultants for our child with additional needs, will we have to travel back to Dublin all the time anyway? Work for me... I'm not a fan of working from home and the thought of working from home for the rest of my professional career, talking to people over Zoom, seems grim. A move outside Dublin would instantly solve the savings/pension issue for sure, but I just question if it would really be worth it. Financially yes it would be, but everything else is the big big question mark.

From next month we're going to start paying off the home improvement loan aggressively, and I think we could have it gone completely in under two years by making extra payments. From that point there would be a lot of extra money freed up. My wife would likely be in a better position to return to work at that stage as well, as the kids would be older, whether it's full-time or part-time I don't know, likely in the 20k-40k salary range and we could try to secure a position with a company that also has a company scheme matching pension contributions to maximise the contributions to her pension fund.

It's a very tricky decision to make. But for now, we are focused on the first task, to get rid of that loan - thanks to you all for the input on this. I think that once it's gone, the financial pressure will be a fair bit less, plus the possibility of a new second income - so things could really change from that point.

Thanks again for all the replies, appreciate it.

 

[Bluefin]

Reading the above response you have answered your own questions.. Stay where you are and enjoy the area you are currently in...being mortgage free in the wrong place is more of a headache!

 

[PGF2016]

Hi @Sarenco @Brendan Burgess @Clamball @NoRegretsCoyote @PGF2016 @Peanuts20

Thanks for all the replies, I appreciate everyone taking the time to share opinons and advice on our situation. It's all very helpful to look at all the different angles. I'll try to respond to all the queries/comments.

On the affordability of the current house - I have questioned that myself, but never really considered it a major issue. Our mortgage is 3.15 times my gross salary, so it's bit under the new Central Bank lending loan-to-income limit. We moved into this house four years ago, and the purchase price was a lot less (about 70% less) than the current valuation. Prior to this house, we were one of the cases in the tracker scandal, and fought for years to get our money back from the bank - and after this past move, the appetite to move again isn't all that great to be honest.

The house is in Dublin, and it's not huge, but it works. We've been in the area for over 15 years, our kids are part of the community with football clubs and other extra curricular activities, so it's comfortable and we really love it here. It's a short drive or cycle to the schools, I'm a short distance from the office on public transport, and there are lots of 3rd level colleges to choose from when the kids reach that age, plus they could live at home if the end up going to college in the area. One of our kid's has a additional needs as well, so it's been very handy to be close to the various Children's Hospitals and clinics in Dublin.

We manage our family budget in a large spreadsheet, every penny is accounted for from the moment I get paid each month. We change gas/electricity/broadband providers every year on the exact day the contract is up to keep costs are a bare minimum. Shop at discount supermarkets such as Lidl to keep costs down. Two cars in the household, both over 10 years old. Nothing fancy, no frills, no crazy expensive purchases, food is always on the table and bills/loans always paid, one "budget" holiday once a year... but yes, it is tight, especially with the cost of living these days.

The idea of moving again to be mortgage free and free up all that extra cash is appealing, but also daunting and seems quite drastic at the same time. Have to change everything for the kids; schools, clubs and circles of friends that they are already comfortable in. All the appointments/consultants for our child with additional needs, will we have to travel back to Dublin all the time anyway? Work for me... I'm not a fan of working from home and the thought of working from home for the rest of my professional career, talking to people over Zoom, seems grim. A move outside Dublin would instantly solve the savings/pension issue for sure, but I just question if it would really be worth it. Financially yes it would be, but everything else is the big big question mark.

From next month we're going to start paying off the home improvement loan aggressively, and I think we could have it gone completely in under two years by making extra payments. From that point there would be a lot of extra money freed up. My wife would likely be in a better position to return to work at that stage as well, as the kids would be older, whether it's full-time or part-time I don't know, likely in the 20k-40k salary range and we could try to secure a position with a company that also has a company scheme matching pension contributions to maximise the contributions to her pension fund.

It's a very tricky decision to make. But for now, we are focused on the first task, to get rid of that loan - thanks to you all for the input on this. I think that once it's gone, the financial pressure will be a fair bit less, plus the possibility of a new second income - so things could really change from that point.

Thanks again for all the replies, appreciate it.

If you were in a dire position I'd strongly suggest moving house but from reading your posts I don't think that's the case. I'd guess it'd be counterproductive with all the upheaval.

 

[Brendan Burgess]

If you were in a dire position I'd strongly suggest moving house but from reading your posts I don't think that's the case.

A very good summary.

 

[Sarenco]

We moved into this house four years ago, and the purchase price was a lot less (about 70% less) than the current valuation.

That strikes me as an unusually high level of capital appreciation over the last four years, even allowing for the fact that you have carried out some home improvements.

Are you sure that valuation is realistic?