# Best use of current lump sum and future monthly savings



## marygl (18 Jun 2020)

Age: 46
   Spouse’s/Partner's age: 45

   Annual gross income from employment or profession: 200k guaranteed salary with 20-30k additional 
   Annual gross income of spouse: 36000

Monthly take-home pay: 11000 between us both, additional earnings included

Type of employment: e.g. Civil Servant,  self-employed 
Public sector health workers both
In general are you:
(a) spending more than you earn, or
(b) saving? Saving 4000 per month currently

   Rough estimate of value of home: 900,000
   Amount outstanding on your mortgage: 430,000, current term 22 years left
*What interest rate    are you paying? *
2.6% fixed for 5 years, approx 4 years left on this. KBC
   Other borrowings – car loans/personal loans etc
  No other borrowings
   Do you pay off your full credit card balance each month? Yes
   If not, what is the balance on your credit card? Nil

   Savings and investments:
Currently have approx 200,000 in savings in low interest savings or current accounts
    Very small amounts of shares
   Do you have a pension scheme? 
    Public sector pensions (defined benefit HSE) with 14 years accrued each. I have retirement age 67, my wife retirement age 60
   Do you own any investment or other property? 
    No
   Ages of children: 
    8 and 6
   Life insurance: 
    Public sector spouses and children for both + Life Insurance for me to value 1.5M.
I also have income protection insurance to cover my salary and additional

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

We obviously have a sum of savings doing nothing for us at the moment, and are unsure of best use.
Options we are considering are:
1) Paying down a portion of the mortgage within the limits of the fixed term agreement (~10% of the remaining) - we have previously been advised against this as we have mortgage protection insurance
2) Purchase AVCs on my spouses pension as she will only have 28 years service at retirement and now works part-time
3) Investments - we considered using Degiro to purchase indexed funds such as Vanguard

From now, as we are saving 4K monthly, how do we best invest this on an ongoing basis?

We would welcome any advice on the above.
Thanks


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## RedOnion (18 Jun 2020)

marygl said:


> ) Paying down a portion of the mortgage within the limits of the fixed term agreement (~10% of the remaining) - we have previously been advised against this as we have mortgage protection insurance


Was this someone in the pub that advised against it? It makes absolutely no sense to be paying mortgage interest when you've cash lying around earning nothing.

Mortgage protection is just a life assurance, with the bank having first interest. If you pay off the mortgage, but keep paying the policy, and one of you died the other gets the money that's left over.

There's no limit to the amount you can early repay. You might have to pay a break fee, but it'll ALWAYS be less than the amount of interest you'll save.

Work out how much 'cash' you need to keep to be comfortable. Include upcoming planned expenditure. Put that aside.

Work out maximum that can be contributed to AVCs for your spouse. Pay now for last year, and set up contributions for this year.

Pay a massive whack off your mortgage.

Only then should you look at investing outside a pension.

Have you thought about setting something up to pass money to children maximising gift tax relief?


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## marygl (18 Jun 2020)

Thanks very much for this, greatly appreciated.

 That advice was actually from an accountant, and with neither of us having financial backgrounds, we took the advice and queried since, having viewed other posts on this site. 

thanks for the advice too on breaking out of fixed term mortgage, that aspect of hadnt been considered by us.

I have been hesitant previously about setting something up to pass money to the children. my personal experience in my younger years, was 18 year olds blowing a lot of their parents hard earned money on gap years and similar. If there was a way that it could be tied up for them to have in their late 20s/ early 30s as house deposit, or late teens for education purposes only, we would definitely consider it. Would you have any suggestions?

Many thanks again


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## RedOnion (18 Jun 2020)

Just on breaking fixed rate, you only need to break the portion you want to repay. Say you want to put 50k into mortgage, they'll calculate fee on that amount, not the full balance.

Re children, personally I've set up a bear trust putting in money monthly to a life fund. I don't have an end date to it. I think once they turn 18 I need to get them to sign something, but that's years away.
My thoughts are that I'm putting away enough to pay their college fees. If I can't afford college, they have their own money to pay. Otherwise, they've a lump sum whenever the trustees (me!) let's them have it.

But, you've still got plenty of mortgage to repay before you worry too much about investing.


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## marygl (7 Jul 2020)

Thank you for this advice. We have now managed to pay 43k off the mortgage without any break out clauses.

My next step was to look at AVCs. As I work in the public service but wont have worked up full amount of years so I have decided to definitely start doing AVCs up to the value of getting the maximum allowable lump sum. 
I only work parttime now so my salary is 36, 000,

I was wondering if I could ask advice though on the following:
is it advisable to contribute AVC up to my maximum level allowed, to make an additional post retirement pension pot? is this an efficient way of investing/saving in tax efficient way?
As a couple we are saving approx 4k a month, so I would have the capacity to do it, if it was considered a sensible option.
Many thanks for all advice


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## cremeegg (8 Jul 2020)

marygl said:


> Rough estimate of value of home: 900,000
> Amount outstanding on your mortgage: 430,000, current term 22 years left
> *What interest rate    are you paying? *
> 2.6% fixed for 5 years, approx 4 years left on this. KBC
> ...





RedOnion said:


> Was this someone in the pub that advised against it?





marygl said:


> That advice was actually from an accountant,



Here is another 'financial professional' giving bad advice. Why do they do that? Because they know no better? Or because there is no profit for them in advising people to pay off a mortgage.

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