# Should we move or not?



## trevize (8 Jan 2017)

Age: 45
Spouse’s/Partner's age: 42

Annual gross income from employment or profession: 100K (potential bonus up to 15%)
Annual gross income of spouse: 40K

Monthly take-home pay :  Around 6500 per month combined

Type of employment: Myself private, wife is part time public sector 

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

Rough estimate of value of home: 515K (based on most recent sales in the area)
Amount outstanding on your mortgage: 75K
*What interest rate are you paying? tracker,  ECB+ 0.9% (5 years left on term)*

Other borrowings – car loans/personal loans etc: 320 
Childcare: around 1K a month

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 

Savings and investments: 20K cash

Do you have a pension scheme?  Yes - my current fund is around 100K.  Contributing 12% per month (7% from employer) , wife has 20 years service (split evenly between part time and full time) but I've no idea what that would be worth (probably should check!)   

Do you own any investment or other property? No

Ages of children: 3, 8, 12

Life insurance: Yes 

We have 3 kids and our current house is going to be a squeeze as the kids get older due to bedroom sizes.  The 2 eldest are currently sharing but I can see a situation where they will be looking for separate bedrooms in the next year or so which will mean the youngest will be left with the box room which is tiny.  So we've been contemplating moving to a larger house within the area and given that there are practically zero new houses being built means buying an older house and having to spend money on renovations.    I think that we'd be looking at a spend of 700-750K on a house ( incl renovations)  to make a meaningful move.  

The question is,  are we mad to consider taking on 300K+ of debt at our ages ( given we are about 5 years from being mortgage free) ?   

My head says we should stay where we are but the heart  says move!  I'd be interested in some unbiased opinions.


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## KOW (8 Jan 2017)

Trevize, 
           First thing to consider do you like where you live? Are you and the family happy with the area?
Five years time you have your loan payed. Your will then be starting the most expensive stage regarding the children?
Can you extend your current property attic room etc?

On your income sure you could jump again. That said I am sure you and your wife have worked hard to chip away and almost wipe out your borrowings. 
Stay where you are if the area suits. Enjoy the kids they will be gone before you know it.


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## trevize (8 Jan 2017)

DCD said:


> Trevize,
> First thing to consider do you like where you live? Are you and the family happy with the area?
> Five years time you have your loan payed. Your will then be starting the most expensive stage regarding the children?
> Can you extend your current property attic room etc?
> ...



Thanks for the quick reply DCD

We love the area and we'd only be contemplating moving a couple of kilometres from where we are now, so within the same town and school catchment area.  

Attic conversion is something we will look into , but I'm not sure we'd end up with a room that could be used as a bedroom given the type of roof we have.


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## Gordon Gekko (8 Jan 2017)

The attic conversion or an extension might make sense. Your mortgage rate is also very low because of your tracker.

However, you have the means to move and you shouldn't be concerned about a €300k mortgage on a €750k house.

Debt is not a bad thing when it's for the right purpose. For example, I would see no issue with the debt you're proposing but if you were taking out a car loan, I would see an issue.

One issue which I do think needs addressing is your pension. You should be making AVCs. That 5% just isn't enough, and €100k is behind where someone of your means should be.


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## gnf_ireland (8 Jan 2017)

A 200-250k upgrade on the house is probably fine, and I am sure it does make a lot of sense. However a 300k mortgage at 3.25% (roughly) is 1700 over 20 years and 2100 over 15 years in repayments.

Can I ask if your children were to go to college/university is it possible that they would stay with you and commute, or likely they would have to live away from home?

The reason I am asking is - pushing it, the 3 year old would be roughly 9 by the time the eldest went to college, so could conceivable have the box room until then. If they eldest was to leave home then, they could be given the box room and the youngest upgraded !  It is something worth considering.

If it is likely that they will stay living with you during the 3rd level years, then I think you will need more space. I don't think it will be feasible as they are all in their teens/early 20's otherwise. A rotation system on rooms is unlikely to work (giving the bigger rooms to the exam class students).

If the roof is not suitable for an extension is it possible to change the type of roof you have (square it off etc), as this would be cheaper than upgrading the house. 

The other issue of concern is bathrooms - teenages spend lots of time in their and you all will want to get out at the same time in the morning !

I think you need to consider all of these and then determine if you need to upgrade the house or not. You should also discuss the possibility of an attic renovation with an architect who may be able to determine what is possible or not.


I also suggest you consider if/how you are planning to fund the children's third level education. It is only 6 years away, especially if you plan to upgrade the house. If you don't upgrade it, you will be mortgage free so should be possible. If you do upgrade, will that put a financial strain on you ? Think of the registration fees alone !


Finally, I agree with Gordon - the pension appears to be low. Using the Pension Authority calculator, it puts you in line for a total pension pot of 400,000 euro, worth around 15,800 a year (in today's money). I am guessing your wife's pension would be worth more than that using the 'years service/80 rule'. 

I was once told that to achieve roughly 50% of your salary as a pension, you would need to pay roughly 25% of your salary into it from the outset (as a reasonable guide) - although others are open to correct me on this.


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## trevize (8 Jan 2017)

Gordon Gekko said:


> One issue which I do think needs addressing is your pension. You should be making AVCs. That 5% just isn't enough, and €100k is behind where someone of your means should be.



Fair comment , I'm planning to start taking my bonus as an AVC rather than as cash which should help.


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## Gordon Gekko (8 Jan 2017)

trevize said:


> Fair comment , I'm planning to start taking my bonus as an AVC rather than as cash which should help.



Fair enough, but I'm a great believer in paying the AVCs on a monthly basis. You adjust to the lower net pay amount and then cease to notice the AVC. 

There's also the "cost averaging" aspect which divides opinion, but which I like.


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## trevize (8 Jan 2017)

Thanks for the thoughtful response, some comments below:



gnf_ireland said:


> Can I ask if your children were to go to college/university is it possible that they would stay with you and commute, or likely they would have to live away from home?
> 
> The reason I am asking is - pushing it, the 3 year old would be roughly 9 by the time the eldest went to college, so could conceivable have the box room until then. If they eldest was to leave home then, they could be given the box room and the youngest upgraded !  It is something worth considering.
> 
> If it is likely that they will stay living with you during the 3rd level years, then I think you will need more space. I don't think it will be feasible as they are all in their teens/early 20's otherwise. A rotation system on rooms is unlikely to work (giving the bigger rooms to the exam class students).



I think its highly likely they'll be at home (we aren't far from the city) and assuming rent remains as high as it is now in Dublin, I wouldn't be surprised if they were still around in their mid 20's !  This is really what sparked our thinking of the move, that we'd end up with an adult living in the box room...



gnf_ireland said:


> If the roof is not suitable for an extension is it possible to change the type of roof you have (square it off etc), as this would be cheaper than upgrading the house.



Unfortunately a couple of people have tried this approach and have been refused planning permission.



gnf_ireland said:


> The other issue of concern is bathrooms - teenages spend lots of time in their and you all will want to get out at the same time in the morning !
> 
> I think you need to consider all of these and then determine if you need to upgrade the house or not. You should also discuss the possibility of an attic renovation with an architect who may be able to determine what is possible or not.



Fortunately we have an ensuite and a main bathroom , so not a huge issue there.  



gnf_ireland said:


> I also suggest you consider if/how you are planning to fund the children's third level education. It is only 6 years away, especially if you plan to upgrade the house. If you don't upgrade it, you will be mortgage free so should be possible. If you do upgrade, will that put a financial strain on you ? Think of the registration fees alone !



I'd imagine it won't be any worse than child care which runs us around 12-13K a year but definitely something we need to include in our thinking.  



gnf_ireland said:


> Finally, I agree with Gordon - the pension appears to be low. Using the Pension Authority calculator, it puts you in line for a total pension pot of 400,000 euro, worth around 15,800 a year (in today's money). I am guessing your wife's pension would be worth more than that using the 'years service/80 rule'.
> 
> I was once told that to achieve roughly 50% of your salary as a pension, you would need to pay roughly 25% of your salary into it from the outset (as a reasonable guide) - although others are open to correct me on this.



Yes, thats a fair point - I'm hoping my wives pension will shore us up a bit and the use of my bonus and/or additional monthly payments.   My wife is likely to return full time once the kids are in secondary school which will help as well.


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## gnf_ireland (8 Jan 2017)

trevize said:


> I wouldn't be surprised if they were still around in their mid 20's ! This is really what sparked our thinking of the move, that we'd end up with an adult living in the box room



I think this is a real concern for a lot of people these days. We are in the same boat - I don't believe our kids will leave until their mid-late 20's. They will not get it as good anywhere else



trevize said:


> I'd imagine it won't be any worse than child care which runs us around 12-13K a year but definitely something we need to include in our thinking.


True, but you still will have some childcare costs for a few years and you are entering an expensive phase of a child's life - the teenage years. If you are carrying a reasonable sized mortgage into this you do need to do it with your eyes open.



trevize said:


> I'm hoping my wives pension will shore us up a bit and the use of my bonus and/or additional monthly payments. My wife is likely to return full time once the kids are in secondary school which will help as well.


Your wife is now 42. Your youngest will start secondary in say 9 years time. She has been doing part time for roughly 10 years. How realistic is it for her to go back to full time after 20 odd years part time? I would have my doubts. I know a lot of people who talk about going back once the kids are older, but never do !


I do think you should do a review of the family finances to see where the money is being spent currently.  6500 euro where you are roughly breaking even each month seems high, relative to salary. Assuming 1500 mortgage and 1000 childcare, its still 4000 a month on 'living'. Personally I would review this to see where the funds are going, and at least be happy on what you are spending your salary on even if you decide not to change it.


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## PaddyBloggit (8 Jan 2017)

What about thinking outside the box (if you have space in your garden) .... a garden room?

I'm sure the teenagers/future adults would love the idea - you could even threaten to charge them rent!

http://www.shomera.ie/bespoke-garden-rooms/

https://www.gardenrooms.ie/designs/

(I've no connection with any of the websites above)


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## Brendan Burgess (9 Jan 2017)

trevize said:


> Other borrowings – car loans/personal loans etc: 320





trevize said:


> Savings and investments: 20K cash



I presume you mean that you are paying €320 per month on some loan?  If so, you should use your cash to clear it.  You are presumably paying around 10% on the car loan?  If you have a 0% loan, then don't. 





Gordon Gekko said:


> One issue which I do think needs addressing is your pension. You should be making AVCs. That 5% just isn't enough, and €100k is behind where someone of your means should be.



This is a clear case where you should *not *be making AVCs at the moment. Yes, your pension fund is too low. But you have almost cleared your mortgage, so you have plenty of assets. You may well be trading up in the next year or two. You will also need money for your children's education. You need to build us accessible assets to fund these. Do not put money away in your pension. 

When the kids are sorted and your mortgage is back under control, you will then have plenty of spare cash to max your pension contributions. 

Brendan


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## Brendan Burgess (9 Jan 2017)

The trading up issue is interesting and I like Paddy's idea of thinking outside the box. 

I doubt if it's a runner, buy you could consider renting a bigger house when you need it. And then moving back to your existing home when the older kids have left. 

Investing in the family home is one of the most tax-efficient forms of investment. No tax on the imputed income i.e. rent saved. No CGT. 
So you could trade up for ten years. When the kids have moved, you could trade down again and you would release a lot of capital tax-free. So it's not as if you have a €300k mortgage for the next 30 years.  

A lot of people do have difficulty trading down, so it's something you need to think about. In the past with stamp duty rates of 6% and 9%, this was not a viable option. But with stamp duty reduced to 1%, it's doable. 

Is there any remote chance you could sell your current home to a friendly investor who might sell it back to you after 10 years?  A long shot, but if a friend or relative is thinking of investing in property, that could work very well. 

Alternatively, could you do a house swap with someone with a larger house? 

Brendan


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## Gordon Gekko (9 Jan 2017)

Brendan Burgess said:


> This is a clear case where you should *not *be making AVCs at the moment. Yes, your pension fund is too low. But you have almost cleared your mortgage, so you have plenty of assets. You may well be trading up in the next year or two. You will also need money for your children's education. You need to build us accessible assets to fund these. Do not put money away in your pension.
> 
> When the kids are sorted and your mortgage is back under control, you will then have plenty of spare cash to max your pension contributions.
> 
> Brendan



Hi Brendan,

I'm apologising again for disagreeing with you!

I fundamentally disagree with the idea of deferring meaningful contributions to one's pension.

The OP earns €115k per annum. Based on other contributors' calculations, they're looking at pension income of circa €25k per annum including the State Pension. 

It's the power of compounding over time that builds a meaningful pension fund. My sense is that the OP won't get to the circa €60k of annual pension income that's recommended for someone on €115k without accelerating the contributions now.

GG


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## Fella (9 Jan 2017)

60k annual pension seems excessive no matter what your earnings are now. I'm not sure why someone would need that much money in retirement.


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## Brendan Burgess (9 Jan 2017)

Gordon Gekko said:


> It's the power of compounding over time that builds a meaningful pension fund.



Hi Gordon

This is a mistake which many people make.

I am not suggesting that he squanders his money instead of starting a pension. I am suggesting that he invests in bigger house and pays off his mortgage quicker instead of investing in a pension.  Paying off a mortgage compounds the money at 3% or 3.5%, tax-free, risk-free and charges free.  If the value of his bigger house increases, it will compound tax-free as well. 

Fella makes a good point as well.  People on €115k are told that then need a retirement income of €60k. People on €200k are told that they need a retirement income of €100k.    Trevize will have paid off his mortgage. He may well have traded down so will have a lump-sum of cash.  And his expenses will be greatly reduced. 

Of course, if he trades down, he probably should use the proceeds to maximise his pension contributions at that time if it's still the right thing to do from a tax point of view.

Brendan


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## michaelm (9 Jan 2017)

trevize said:


> The question is, are we mad to consider taking on 300K+ of debt


Mad.  I wouldn't dream of moving just because the box room might be a bit of a squash and a squeeze for the youngest.  In a year or two, when it makes sense, you can just separate the older two and stick the youngest in the box room.  By the time the youngest is a teenager the eldest may well have moved out or be away at college in which case the youngest will get an upgrade.

Also, pretty much any attic can be converted, just depends on the height.  I recently had my attic converted (planning exempt) and it's a decent space given how small my house is, that I have a hip roof, and the stairs runs up the middle of the room.  Great storage too.


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## Gordon Gekko (9 Jan 2017)

But the 3.1% return does nothing to fund the individual's retirement.

Mortgage repayments tend to be circa 30% of one's income. There should be room elsewhere to makr AVCs.

If my monthly mortgage is €3k and I'm making a €2k AVC, I disagree that I'd be better off putting the net €1,200 against my mortgage for the next 15 years and then starting to contribute to my pension.


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## Brendan Burgess (9 Jan 2017)

€300k debt will cost you around €9k in interest a year. A bigger house will have higher running costs and higher property tax. 

Only you can decide if the extra room is worth the additional €1k a month for probably 10 years. 

Brendan


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## Brendan Burgess (9 Jan 2017)

Gordon Gekko said:


> But the 3.1% return does nothing to fund the individual's retirement.



The best way to build his wealth is to cut his expenditure. So by not trading up, he will be richer in 10 years time. (Unless house prices increase by more than 3% a year over that period.)

If he decides to trade up...

Then paying off the mortgage quicker will result in a tax free, risk free, charges free return of 3.1% per annum.

Let's say he has €10,000 cash today. If he pays it down against his mortgage, this will be worth €13,439 after 10 years.

Let's say that instead of paying off his mortgage, he invests €17,000 in his pension fund which will cost him a net €10,000 after tax-relief. If he gets a 3% return after charges, after 10 years, he will have €22,800 but it will be in his pension fund.

He could put the €13,400 cash into the pension fund at that stage, and it would be worth €22,400 (after tax relief) .

So there is very little financial difference. But that is assuming that the pension fund will generate a return of 3% a year after charges.  It might get more, or it might get less. It also assumes that the tax-regime stays the same. It might become more favourable or it might become less favourable.

Personally, I would prefer to owe €13,400 less on my mortgage than have an additional €22,400 in my pension fund.

But making the decision now to pay off a €300k mortgage quicker, does not preclude him from contributing to the pension fund later when the mortgage is under more control.

Brendan


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## Fella (9 Jan 2017)

Stupid question time , I don't get when the advice is max out AVC for tax purposes for people that are going to be getting 60k pension a year surely your going to be paying tax then at the high rate ? So your just deferring tax till later . Obviously fund gets to grow tax free but should you not aim to max AVC to keep you in low tax bracket at retirement ? Going over this into high tax rate for me seems to defeat the purpose of it.


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## Brendan Burgess (9 Jan 2017)

Hi Fella

While you raise a valid principle, that is not applicable in this case. 

He has only €100k in his AVCs at age 45.  Adding 12% of his salary each  year, is "only" another €12k. So it's unlikely to give him a pension anywhere close to €60k. 

But as I have said elsewhere, I don't think it's wise to fund a pension beyond €800k - the amount where you can get 25% tax free. But that is a minority opinion - Just you and I. 

In any event, it's not wise to contribute to a pension fund over €800k when you are paying 3% interest on a mortgage. 

Brendan


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## gnf_ireland (9 Jan 2017)

Brendan Burgess said:


> But as I have said elsewhere, I don't think it's wise to fund a pension beyond €800k - the amount where you can get 25% tax free.



I am sure there is a key thread on this somewhere in the pension forum, so will go have a look at it. If not, it might be a good idea to create one to discuss this properly.

Lets say someone has a pension of 800k, is mortgage free and sufficient cash reserves. They have a fantastic year at work and are given a bonus of say 50k. There are two choices open to them - draw down immediately and pay 52% tax OR invest in pension fund and defer the liability.

Assuming they draw down the fund and invest with 3% return after all charges for 7 years. This would see a return of roughly 3255 after exit tax. They would end up with 27800 odd euro.

If they put it into their pension pot, it would accumulate to roughly 61,500 at the same growth rates in the window.

Using the Pension Authority calculator, an 800k pension is roughly equal to 23,900 a year. Including state pension, this is becomes 36,000 euro.
For a married person, one party can have an income of 42,800 before hitting the high rate of tax, and the other earner 24800. Or single earner could make 33800 euro.

A higher pension fund may assist some bridge the gap before the state pension is available to them, or allow them maximise the available tax bands in the event of a partner having a lower pension fund available (i.e. would not hit the 33800 mark including state pension).

I don't necessarily agree that a pension fund in excess of 800k is a bad thing. It may be very useful to facilitate early retirement (especially as state pension age rises), and also useful to support maximising the available tax bands.

Am I missing something here ?







Brendan Burgess said:


> In any event, it's not wise to contribute to a pension fund over €800k when you are paying 3% interest on a mortgage


Absolutely 100% agree with this statement. However, I don't believe anyone was staying this. What I suggested was OP needed to review his lifestyle expenses to see where the money was being spent. Given his current contributions there will be a massive adjustment factor once retirement kicks in. I fully accept the spending patterns will 100% change, but it is something the OP needs to be aware of. The point was, at 115k salary, its something that needs  to be reviewed !


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## Sarenco (9 Jan 2017)

gnf_ireland said:


> I am sure there is a key thread on this somewhere in the pension forum, so will go have a look at it. If not, it might be a good idea to create one to discuss this properly.



Some of these points were discussed on this thread:-
http://www.askaboutmoney.com/thread...i-should-contribute-to-a-pension-fund.190321/


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## gnf_ireland (9 Jan 2017)

thanks @Sarenco  I see that some of the points I was attempting to raise are listed in the discussion, including

- level of income at standard tax rate
- married couples under joint assessment model
- early retirement ambitions (in advance of State Pension age). Most professionals will have started working by 22/23 (assuming university etc). Most will not want to work 45 years if they can avoid it. Those who do not attend university will probably have started work earlier, with 50 years service before state pension age.
- the risk of the state pension in real terms in the future. I am 41 for example. I could live 50 more years, depending on advances in science !
- the value of a 800k pension pot. Assume 200k tax free and 4% draw down is 24k a year - excluding state pension

My personal view is that pension size is very much dependent on what people can afford, and their personal circumstances. I also agree they should not contribute in unless they are getting tax relief from the contributions. However I would be slow to recommend a 800k maximum without a full assessment being done on the  persons finances and lifestyle objectives.


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## trevize (10 Jan 2017)

Brendan Burgess said:


> The trading up issue is interesting and I like Paddy's idea of thinking outside the box.
> 
> I doubt if it's a runner, buy you could consider renting a bigger house when you need it. And then moving back to your existing home when the older kids have left.
> 
> ...



I'd rather not become a landlord and I don't think we'd be able to find someone to buy the house and then sell it back to us.    Downsizing is something we definitely plan to do once the kids leave , my own parents did this and it worked out very well for them and as you point out stamp duty is no longer a barrier to this.

Paddy's idea is a good one but I'd probably place it second to the attic conversion.


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## trevize (10 Jan 2021)

Apologies for resurrecting an old thread but just wanted to come full circle with an update on our current situation.  The planners in our area have had a change of heart and we recently got planning permission to change the roof type which will mean we can add attic conversion with an ensuite and dormer.  We plan to convert it as habitable space (following all the building, fire regs)  so it will count as an additional bedroom .  All in all I think this is the best solution for our family.


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