38 year old looking to try and plan for future after buying house and starting family

[faketales]

Personal details

Age: 38
Spouse’s/Partner's age: 39

Number and age of children:
1 child under a year.


Income and expenditure
Annual gross income from employment or profession: €70,000
Annual gross income of spouse: €85,000 (on unpaid mat leave) Something like €260 per week.

Monthly take-home pay: €3,600 for me. Approx. €1k for my wife on mat leave.

Type of employment: Me: Semi state Wife : private

In general are you:
(a) spending more than you earn, or
(b) saving?

Currently spending a little more than we earn but once my wife returns to work we will be saving. Not sure how much as need to confirm creche fees, new expences with a child etc.


Summary of Assets and Liabilities
Family home worth €445k with a €250k mortgage
Savings of €130k
Defined Contribution pension fund:
Me: €85k (contribute 20% between employer and employee)
Wife: €128k (contributes approx. 10%, no employer contribution)


Family home mortgage information
Lender: BOI (transferred from KBC)
Interest rate: 2.4%
Type of interest rate: tracker, variable, fixed. Fixed
If fixed, what is the term remaining of the fixed rate? 34 months


Remaining term: 22years 10 months
Monthly repayment: 1,175

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes
No other borrowings. Own cars outright.



Other savings and investments:

Do you have a pension scheme? Yes, noted above.

Do you own any investment or other property? No.


Other information which might be relevant

No life assurance beyond mortgage protection. My employer will pay my wife 3.5 times my salary if I die. I think I have some other benefits with that also that I need to look into.

My wife has no such protection.

Our mortgage is an ex KBC mortgage so we can pay down an additional 10% of remaining balance within the term.

My future pension value is showing as 560,000.




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

My wife is relatively well covered should I die but if something were to happen to her I (and our child) would be in a more difficult situation. Okay mortgage would be paid off by she has no income protection or similar. We need to address this but I am not sure what we require. Also as my cover is linked to my job it may prevent me moving if we rely fully on that and new job does not offer similar. This seems a big gap in our future planning.

We have good savings and are not sure to pay down mortgage, pay more into pension or invest?

The last few years have been about buying a house, getting married and having a baby so lots of big expenses and change in financial priorities. Having a child sort of changes priorities and we now have a focus on the medium and long term. Not sure what that actually means.

 

[presidenttttt]

Your savings seem very high - they are too high if they have been built up over time via income - those funds would have been better off inside your pension. But maybe you sold another asset in which case the cash pile was "unavoidable"?

Your mortgage rate of 2.4 is relatively low - the incentive to pay it off is not massive, you would "only" need an average return of ~6% from investment to warrant putting those funds into the stock market. It is 3 years before you will get a new rate - it is impossible to know where rates will be. I would not pay the mortgage off, and review that decision only when it comes to end of current term. Others will know more about how you can retrospectively direct some of it into pension, if possible at this stage (I think it is for this tax year), otherwise I'd put it in the stock market - understanding the risk is that in 3 years the amount may not have grown. I have a similar sum of funds and am looking to invest in a business, but that is a very different route/choice.

Kids and childcare are expensive - you are right to reserve judgement on where your future outgoings will settle.

There is obviously a personal preference and individual circumstances regarding your partner returning to work, but it is also a financial decision - financially, I see too many people returning to work only to pay child care, into a role where career progression/pay is not going to change massively by going back.

 

[Sarenco]

In your shoes, I would throw the bulk of your €130k savings at your mortgage (leaving the term as it is) and you should definitely both increase your tax-relieved pension contributions to the maximum allowed for your ages (employer contributions are ignored for this purpose).

You could look at buying additional life cover and/or PHI cover for your wife. But it’s expensive and, IMO, it’s not critical in your circumstances.

 

[DannyBoyD]

many people returning to work only to pay child care, into a role where career progression/pay is not going to change massively by going back.

You are ignoring the significant impact on career, future earnings, pension provision, promotions, bonuses etc., faced by a parent if they are not working for an extended period.

You reference "going back", so it appears that you are suggesting the mother (since she is the parent on maternity leave) is not going to progress further in her career.

Curious as to how you make that deduction?

To the OP - childcare costs are high initially, but taper off over time.

 

[faketales]

Your savings seem very high - they are too high if they have been built up over time via income - those funds would have been better off inside your pension. But maybe you sold another asset in which case the cash pile was "unavoidable"?

Your mortgage rate of 2.4 is relatively low - the incentive to pay it off is not massive, you would "only" need an average return of ~6% from investment to warrant putting those funds into the stock market. It is 3 years before you will get a new rate - it is impossible to know where rates will be. I would not pay the mortgage off, and review that decision only when it comes to end of current term. Others will know more about how you can retrospectively direct some of it into pension, if possible at this stage (I think it is for this tax year), otherwise I'd put it in the stock market - understanding the risk is that in 3 years the amount may not have grown. I have a similar sum of funds and am looking to invest in a business, but that is a very different route/choice.

Kids and childcare are expensive - you are right to reserve judgement on where your future outgoings will settle.

There is obviously a personal preference and individual circumstances regarding your partner returning to work, but it is also a financial decision - financially, I see too many people returning to work only to pay child care, into a role where career progression/pay is not going to change massively by going back.

In your shoes, I would throw the bulk of your €130k savings at your mortgage (leaving the term as it is) and you should definitely both increase your tax-relieved pension contributions to the maximum allowed for your ages (employer contributions are ignored for this purpose).

You could look at buying additional life cover and/or PHI cover for your wife. But it’s expensive and, IMO, it’s not critical in your circumstances.

Always interesting to see different views. @presidenttttt and @Sarenco

Both my wife and I had individually decent savings when we met a number of years ago. I think we both would have see it as a deposit for a house if buying alone. We were prioritising deposit over pension I suppose. Perhaps not perfect but I image pretty common. We then decided not to put it all down as a house deposit strait away to keep options open. Its also increase a bit since we bought two years ago.

We can look at upping pension contributions. Is there a target we should be aiming to have in? Have as a retirement plan? Any good online calculators?

Three years in the stock market seems very short. I could easily loose money in that time frame so I think if I did go that route we would commit to a bit longer time.

@Sarenco Can you help me understand the logic re paying more off but keeping the term the same. Is it to reduce my mortgage payment so I can increase pension contribution?

Given my wife's salary I think it does make sense for her to return to work.

 

[presidenttttt]

I made no judgement on the individual situation regards return to work - there is insufficient info to do so. Albeit the little info we have suggests a decent salary, in the first instance, which often comes for roles with meaningful material pay progression too.

My point is a general one (excuse me if it didn't translate as such), and implicitly factors future earning and pension provision hence my comment about looking forward at upcoming promotions /pay progression. There is a significant cost for child care in this country, for many jobs there are very marginal financial arguments for lower earner to return to work - until those years of hefty child care are over (school starts) - and then there is the non-financial benefits for the children but that's for another forum.

Yes 3 years in the market is not very long, so there is some risk (and associated higher return than just paying off a chunk of mortgage), the risk of interest rates remaining high is somewhat mitigated in that with both incomes your can swallow the high rates where as others can not - but while risk (of being unable to pay) is mitigated the cost of course will be real if it materialises that rates remain high, so that is down to risk appetite.

It is hard I think to give a target for pension contributions - it will depend on expected value of assets, number of children, lifestyle you wish to have etc, but probably suffice to say both pensions pots are currently a long way off the maximum allowed pots, so you can not really go wrong by pumping up the contributions and AVCs to annual limits which I understand are;

Age	% of Earnings	Maximum contribution
Under 30	15%	€17,250
30-39	20%	€23,000
40-49	25%	€28,750

You could max AVCs immediately and run down some of your savings if you can't throw them at mortgage until term is up. Others might take a view on this? It seems like a way of securing some tax efficiency from that sum.

 

[Clamball]

Try dividing your financial goals into short, medium and long term. You are very lucky with your substantial savings showing how you are both prudent savers but you have to spend/save with a purpose.

Short term - childcare, future children plans, unpaid parental and parents leave etc. childcare could revolve around you both working a 4 day week, using relatives the other days or full on crèche fees.

Medium term - say the school going years when your life revolves around the rhythm of the school year. What type of parents do you want to be, what experiences for the kid(s). Do you want to do Lapland/skiing in winter, Disneyland/florida in spring, short haul/ long haul holidays in summer etc. Or do you see yourself doing day trips to the seaside, hiking the hills, walking the dogs, or will you be sports/cultural type with GAA/dance/tennis/violen whatever really driving the family dynamics every evening and weekend? Will you have a holiday house in Spain, or a mobile home on the west coast? All fun choices but will have a lifestyle cost for whatever you choose.

And then long term, mortgage paid, pension savings to continue the lifestyle you would like when you retire. Having the healthy lifestyle to enjoy it all.

Once you and your wife sort your goals you can put % of your savings/earnings into each pot and review regularly that you are on-track,

Looking at your post you were very focused on short term goals in the last few years, and your pension looks a bit low (but you have 25 years to grow it).

If you do put a lump sum into your mortgage the keep the term of your mortgage and reduce your monthly repayments. Keep the 22 years term and the you can decide monthly/ yearly to increase repayments over monthly interest and capital. This way in periods of unemployment/illness you can pay the minimum capital/interest which is low because you kept the term.

If you want to grow your wealth then decide how much you want to invest, what is your risk level, and go for it. But be prepared to loose if the choices don’t pick winners.

 

[Sarenco]

@Sarenco Can you help me understand the logic re paying more off but keeping the term the same. Is it to reduce my mortgage payment so I can increase pension contribution?

It just maximises flexibility should your circumstances change.

In terms of a target pension pot, it really all depends on your projected expenditure in retirement.

But from a tax point of view, maximum efficiency would be reached with a pot of €800k each (because the 25% tax-free lump sum is capped at €200k).