33, good salary, what comes next? Mortgage or investments?

T

throwaway32

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Personal details

Age: 33
Spouse’s/Partner's age: 31
Number and age of children: None. Hopefully one in short/medium term.


Income and expenditure

Annual gross income from employment or profession: Approx €200k all in, salary(~110), car allowance (12), bonus (20), shares/ESPP (40-60 fluctuates)
Annual gross income of spouse: 42k

Monthly take-home pay: Fluctuates, but averages something around 7k (salary + car allowance approx 4k, others approx 3k averaged across the year). Spouse something like 2.5k

Type of employment: Private sector, spouse public sector.


In general are you:

(b) saving - saving plenty. 2.5k per month from salary with larger amounts in 'good' months (bonus etc). Probably save ~50k per year. Recent large outlays have cut into savings (house, and some necessary house repairs), so currently building cash back up.


Summary of Assets and Liabilities
Family home worth €450k with 320k mortgage left. No other debt.
Cash of €40k
Private pension fund: €140k. Have been maxing out for a few years.
Company shares : €0k (sell them as I get them)


Family home mortgage information
Lender - AIB
Interest rate - 2.25%
If fixed, what is the term remaining of the fixed rate? 3.5 years

Other borrowings – car loans/personal loans etc

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

2x cars with no loans.


Other savings and investments:

Do you have a pension scheme? Above, worth 140k at the moment. Contributing maximum for my age which is why salary take home is relatively low for salary. Invested 85% in world equity partial hedge and 15% in high growth fund. (Irish Life)

Do you own any investment or other property? No


Other information which might be relevant

Life insurance: 6x salary and separate mortgage protection
Income protection - 75% salary


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

So far I've been following the 'usual' advice. Get on the property ladder. Lock in the best mortgage rate. Max out pension. Max out ESPP. Sell company shares. Build up a good emergency fund.

I'm wondering what's next. Look at another property? Invest in some diversified shares? Aggressively save to pay down mortgage for when fixed term ends? I can likely get in a position to knock a large chunk (100k or more) off it when the fixed rate finishes but can't work out if this is the best thing to do.

Just want to make sure I'm doing the right thing to set us up for the future. I'm aware how fortunate I am to be earning what I do (I pinch myself about it often to be honest).

Our lifestyle isn't crazy extravagant, and I do budget, but to be fair, since we sorted the house we've been enjoying trips away, restaurants, treats etc without worrying about the cost. I could be more disciplined. Some vices would be restaurants and going out (maybe ~500 a month) and concerts/trips (~500 a month)

The advice might be 'keep going' but interested to hear the opinions of those on this board.
 
throwaway32 said:
Life insurance: 6x salary and separate mortgage protection
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This seems on the high side given that you have no children yet and spouse has own employment.

throwaway32 said:
Aggressively save to pay down mortgage for when fixed term ends?
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You can almost certainly do this today without penalty. Check with your lender.

Otherwise you have a model set of finances for someone your age. I don't think you can do much better for now than use spare cash to pay down mortgage. I wouldn't worry too much about spending habits given your income levels - if you have kids these patterns evolve naturally anyway.
 
throwaway32 said:
Aggressively save to pay down mortgage for when fixed term ends?
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Just pay it off now. Zero break fee. Gets the money out of sight, reducing the risk of 'lifestyle creep' eating up your money.

throwaway32 said:
Number and age of children: None. Hopefully one in short/medium term.
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Personally, I think this should be front and centre of your mind in your medium term financial planning. If you have a child / children, you're in the very fortunate position that you can financially afford for one of you to cut back on work hours to spend at home. You really won't know how you'll feel about that until you're in the situation, so I'd be securing that flexibility to make sure you have the option.
Pay down your mortgage aggressively now, so the contractual repayments are lower.

Your post talks about your finances, but not much about your better half. Are they maximising their pension contributions also? There might be scope for AVCs or buying back years. Tax relief is 'use it or lose it'.
 
NoRegretsCoyote said:
This seems on the high side given that you have no children yet and spouse has own employment.
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I assumed it is death in service benefit provided from work.


Back to the OP, it seems you have the correct habits, which will serve you well in the long term. Paying down your mortgage or investing are both correct decisions. It doesn't have to be one or the other, you can do both. Or you can invest and then in the future use that money to pay off debt.

But carry on living on less than you earn and using the rest to pay off debt/ invest. Do that consistently and you will build up wealth in the long term that will allow you to make choices about work/lifestyle in the future.


Steven
www.bluewaterfp.ie
 
throwaway32 said:
Personal details

Age: 33
Spouse’s/Partner's age: 31
Number and age of children: None. Hopefully one in short/medium term.


Income and expenditure

Annual gross income from employment or profession: Approx €200k all in, salary(~110), car allowance (12), bonus (20), shares/ESPP (40-60 fluctuates)
Annual gross income of spouse: 42k

Monthly take-home pay: Fluctuates, but averages something around 7k (salary + car allowance approx 4k, others approx 3k averaged across the year). Spouse something like 2.5k

Type of employment: Private sector, spouse public sector.


In general are you:

(b) saving - saving plenty. 2.5k per month from salary with larger amounts in 'good' months (bonus etc). Probably save ~50k per year. Recent large outlays have cut into savings (house, and some necessary house repairs), so currently building cash back up.


Summary of Assets and Liabilities
Family home worth €450k with 320k mortgage left. No other debt.
Cash of €40k
Private pension fund: €140k. Have been maxing out for a few years.
Company shares : €0k (sell them as I get them)


Family home mortgage information
Lender - AIB
Interest rate - 2.25%
If fixed, what is the term remaining of the fixed rate? 3.5 years

Other borrowings – car loans/personal loans etc

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

2x cars with no loans.


Other savings and investments:

Do you have a pension scheme? Above, worth 140k at the moment. Contributing maximum for my age which is why salary take home is relatively low for salary. Invested 85% in world equity partial hedge and 15% in high growth fund. (Irish Life)

Do you own any investment or other property? No


Other information which might be relevant

Life insurance: 6x salary and separate mortgage protection
Income protection - 75% salary


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

So far I've been following the 'usual' advice. Get on the property ladder. Lock in the best mortgage rate. Max out pension. Max out ESPP. Sell company shares. Build up a good emergency fund.

I'm wondering what's next. Look at another property? Invest in some diversified shares? Aggressively save to pay down mortgage for when fixed term ends? I can likely get in a position to knock a large chunk (100k or more) off it when the fixed rate finishes but can't work out if this is the best thing to do.

Just want to make sure I'm doing the right thing to set us up for the future. I'm aware how fortunate I am to be earning what I do (I pinch myself about it often to be honest).

Our lifestyle isn't crazy extravagant, and I do budget, but to be fair, since we sorted the house we've been enjoying trips away, restaurants, treats etc without worrying about the cost. I could be more disciplined. Some vices would be restaurants and going out (maybe ~500 a month) and concerts/trips (~500 a month)

The advice might be 'keep going' but interested to hear the opinions of those on this board.
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All seems to be in good order. As suggested by others, you can continue to add heavily to pension and pay down debt simultaneously. Few small things to consider:

- If you keep going on this track, the SFT may come into play for you so to the extent you ‘share’ finances, I’d look to maximise the other halves AVCs before yours (to the extent you still get full tax relief)

- Any other major future expenditure? Upsizing when baby comes, extension/renovations etc. If so, could be worth building up money outside pension to allow you to do this without another mortgage (although if this is ages away, don’t sit paying interest on the current mortgage while you build up reserves indefinitely. This will be particularly true when your interest rate goes to 4/5/6% in a few years Depending on your time horizon some will say you should hold these savings in cash. Id say you’re strong enough financially to take the risk no matter the time horizon and hold this money in diversified equities. Given your income to date ratio, you can be extremely risk seeking in your decision making.
 
Thanks for the replies. To address a couple of comments.

The life insurance is a work benefit which is handy.

Re the mortgage, I don't think that AIB allow overpayment within the fixed term, unless that's changed?

Would you overpay to reduce term or reduce repayments? I'm of the opinion to reduce repayments to keep flexibility in case something unforeseen happens.

Great call on spouses AVCs. Will be looking into this as a way to get more tax relief. Does the fact that we're now jointly assessed play into this in any way? Or can we only get the high rate of relief on their salary over 40k?
 
throwaway32 said:
Does the fact that we're now jointly assessed play into this in any way? Or can we only get the high rate of relief on their salary over 40k?
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Yes, they can get relief at higher rate on anything over 31k by switching band to you.

They can still make back dated AVC for 2022 until October
 
throwaway32 said:
Thanks for the replies. To address a couple of comments.

The life insurance is a work benefit which is handy.

Re the mortgage, I don't think that AIB allow overpayment within the fixed term, unless that's changed?

Would you overpay to reduce term or reduce repayments? I'm of the opinion to reduce repayments to keep flexibility in case something unforeseen happens.

Great call on spouses AVCs. Will be looking into this as a way to get more tax relief. Does the fact that we're now jointly assessed play into this in any way? Or can we only get the high rate of relief on their salary over 40k?
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AIB have their early repayment fee calculated differently to all other lenders. It’s the difference between your rate and their current rates for the duration left on the mortgage. In short, with current market conditions you can overpay as much as you want without any fee with AIB. I agree, lower repayment amount and retain flexibility. You can continue to overpay monthly even if you reduce contractual amount.

As you’re jointly assessed, any earnings over €31k from your spouse will get full tax relief.

edit - to clarify, the ability to overpay as much as you want is because your current mortgage rate is so much lower than market rates. When you refix in future at a higher rate, this may no longer hold true.
 
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You are considering children. Is your current home big enough for your hoped for family size, including potential living at home for college? It's a long way off but if you live near colleges it's likely, the longer you have the bigger home the more enjoyment you get out of it. If you plan to trade up doing so before you have kids will certainly make it easier. Now might be an ideal time to splash out on a nice trip or experience before kids come along.

How likely is it that both of you will continue working once you have kids? If someone will step back, and given the salary disparity it is likely to be your spose, how do you mitigate the risks of being a one income family at your career stage, how likely would you be able to find a new role if something were to happen in your current one? Eg having a reduced or no mortgage would reduce pressure in a period of lower than usual income.
 
Yes the big qn is your house situation, do you need to move if you start a family, if so then you need to start saving towards that and also consider what a one income family looks and feels like if you go down that road. But you are in a good spot and dont feel about enjoying the money now and again!
 
Regarding the house, we just moved into it a year and a half ago with the view that we'd be happy staying here for a long time. It's a 4 bed so there's good space for a small family. No plans to trade up any time soon as we've just gotten it how we want it with some energy efficiency upgrades.

So no need to change the house.

All good points for discussion between us though around trading up in the future and also possible work situations post any children. My view and my spouses might not be the same.

Losing a job and how easy it would be to get another at a similar level does play on my mind. I work in a popular field and have good transferable skills but if a layoff was to happen, I feel like it might be difficult for me to walk into another job at the same pay level as I just feel like roles at this salary are not all that common. This is just my own natural pessimism really.

Hence the post, and the saving and planning for the future. The goal is to make hay while the sun shines in case something was to happen.
 
With a fixed rate or 2.25%, I don't see why you would repay early. Look at the best buys for deposits thread and you'll exceed that even after taking away DIRT.

Deposit money to make interest and ensure it's not locked in past the end of your fixed rate period. Make a decision on repayment once you get to the end of the fixed rate period then - at that point it might be worth paying off the mortgage. In the meantime you still have the cash in case you need it, once you give it over to AIB to redeem the mortgage it's gone. You might never get such cheap money again!
 
Well yes, investing in something else might well bring a better return but also introduces risk.

I was simply pointing out that if it's a straight choice between repaying the mortgage early and putting it on deposit, you do better by putting it on deposit given the low fixed rate.
 
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