# 33 | Sizeable cash pot | what to do next



## Axlmac2 (16 Mar 2022)

*Personal details*

Age: 33

Spouse’s/Partner's age: 34

Number and age of children: 
1 x 18 months
1 x due in summer

...Damn they're expensive  ... but would be keen to have 3 or 4 in total

*Income and expenditure*
Annual gross income: 125k + 20% bonus - may get 10 to 20% uplift in core in summer

Annual gross income of spouse: 50k

Monthly take-home pay: Approx 8900e

Both privately employed

Saving approx 3500 per month

*Summary of Assets and Liabilities*

Family home worth approx: 520k

Mortgage: Approx 318k

Cash: €120k

Pension fund: Approx 100k

*Family home mortgage information*
Lender: PTSB

Interest rate: 2.8% fixed finishing August 2022

*Other borrowings – car loans/personal loans etc*

Don't have a credit card

Wife keen on bigger car in 2022 though - approx 30k budget needed if we trade in

*Buy to let properties*

None

*Other savings and investments:*

Both have pension scheme

Me: 6% me + 8% employer + 2% on AVCs
Partner: 5% her + 5% employer

*Other information which might be relevant*

Mortgage protection
Employer death in service - 10x my gross

However

No private healthcare
No illness income protection 

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

Current end of 2022 plan is to:  

- Pay 120k off mortgage
- Buy new car at 30k
- Keep small rainy fund of 10k or so

This assumes bonus in summer of net 12k & hitting saving targets 

Does this plan make sense?

Should I take action on anything else?


----------



## Brendan Burgess (16 Mar 2022)

Axlmac2 said:


> Current end of 2022 plan is to:
> 
> - Pay 120k off mortgage
> - Buy new car at 30k



Your strategy is correct, but your timing seems wrong. 

Why wait until the end of 2022 to pay it off your mortgage? 

No need to wait. Pay it off now and face the break-fee. It is likely to be far lower than the interest you will pay in the meantime.

Then build up the €30k needed to buy a car.


----------



## Brendan Burgess (16 Mar 2022)

If you are both healthy, take out very basic health insurance so that when you need fuller health insurance it won't be loaded. 

If you wait until you are 35, you will pay 2% extra a year. 

Brendan


----------



## misemoi (16 Mar 2022)

How suitable is your current home for a family of six? If a new baby is due this summer and you can work remotely it would strike me as a great chance to trade up to a larger house, if you need to sell to buy then you can move elsewhere during maternity leave to somewhere it might be easier to rent, or while you get renovation work done on a new house. Also your borrowing power will reduce as your family expands... childcare will eat up the second salary.


----------



## Itchy (16 Mar 2022)

Axlmac2 said:


> Does this plan make sense?
> 
> Should I take action on anything else?



Its a risk averse plan. 

You have scope to max out your pension contributions. 

€115 (you) + €50k (spouse) = 165k * 20% = 33k less the contributions already made. 
125 * 8% (you) and 50k * 5% (spouse) = 12.5k. 
33-12.5 = 20.5k contribution.
Tax relief @ 40 % = 8200. Possibly have scope to pay in for last year too, which doubles the tax relief. 

This would increase pension funds by 41k and reduce cash to (120 - 41 + 16.2) 95k. But by not paying this off the mortgage, this 'costs' you 41k - 16.4k (assuming you pay down the loan by the tax relief) = 24600 * 2.8% = €690 interest that you would have otherwise saved. 

But 690/41k = 1.7% p.a. which is the growth required from your pension investment (the 41k) to offset the interest paid. Very achievable. 

Switch the mortgage to Avant or Bank of Ireland today for 1.95%, saving 2.5k per year. Pay down your mortgage by whatever is left after maxing your pension tax relief. 

You're well off, you don't need to be too conservative. The adults probably need health insurance, the kids don't. You probably need something like income protection, more importantly.


----------



## Ryan (18 Mar 2022)

Get health insurance before the age at entry loading hits at 35. You have more than enough income to cover


----------



## Peanuts20 (21 Mar 2022)

Private Healthcare for the family would be the starting point.

Secondly, and sorry to be morbid, but if not done, sort out a will, including who will be guardians for the kids in case the worst happened

Your income is going to take a hit this year and next year, your childing minding costs are going to go up, significantly, you need to factor that into your thinking, on the plus side, more child benefit!. 

Is your other half going to go back to work full time? Your in a decent place to contemplate one of you working part time, it does make life a lot easier, especially when school starts to kick in? As part of that, you should do a full tax review to ensure you are the most tax efficient possible, including seeing if you have any back claims you can do. 

Next, do you or your spouse need to invest in your careers, is there any training or courses you should or could be considering, part time or remote?

I'd also start contemplating a long term investment strategy for kids and college. I know it is hard to contemplate since it is 18 years or so away but if you start now, when the time comes, it will be a tasty little sum


----------



## Brendan Burgess (21 Mar 2022)

Peanuts20 said:


> I'd also start contemplating a long term investment strategy for kids and college. I know it is hard to contemplate since it is 18 years or so away but if you start now, when the time comes, it will be a tasty little sum



No need to contemplate it too long. The best long term investment strategy is to pay down his mortgage or contribute to a pension. 

Brendan


----------



## Peanuts20 (21 Mar 2022)

Brendan Burgess said:


> No need to contemplate it too long. The best long term investment strategy is to pay down his mortgage or contribute to a pension.
> 
> Brendan


 It costs 40-60k to put a child through college, if they live away from home. Potentially more. Paying down a mortgage or into a pension won't fund that. Yes, there may be tax advantages in doing the latter but it would be better to diversify


----------



## Brendan Burgess (21 Mar 2022)

Paying down a mortgage does fund that. 

He gets a risk-free, tax-free return of 2.8% by paying down his mortgage.  His mortgage will be well cleared a few years in advance of his kids going to college and he can then put funds aside for fees. 

The pension is a bit more tricky. I prefer paying off the mortgage and then funding the pension later. But I am in a minority on that. Many of the informed posters here insist on maxing the pension.  I don't agree. But if he does max his pension now, he will not have to contribute when the kids are in college. 

Brendan


----------



## Brendan Burgess (21 Mar 2022)

Peanuts20 said:


> it would be better to diversify



No, no, no.

It is wrong to borrow money at 2.8% to "diversify".

The purpose of diversification is to reduce risk. Borrowing money at 2.8% increases risk.

Brendan


----------



## Axlmac2 (25 Mar 2022)

Thank you for all of your responses - they have been very helpful.

*Mortgage*

I phoned PTSB and break clause is 0. I will now progress with lump sum pay down and switch to Avant. Will prioritise this over pension and investments for now. Thanks Brendan for the heads up on break fee & Itchy on detailed number crunching.

*Childcare*

Thanks Misemoi - our childcare is already 10% of monthly expenditure. While nothing can be assumed it would be kid 3 when it would barely make financial sense for wife to work. We'll probably make the call then (assuming we'd be lucky enough to be in that position)

*Health cover*

Ryan - thanks for the heads up on benefits of taking this pre 35. Whilst it kills me to pay for this (based on a natural suspicion of private healthcare + amount of tax we pay for HSE) the guilt now outweighs the financial benefits.

*Will*

Great shout Peanuts20 - I will get one as the new mortgage gets done


----------



## NoRegretsCoyote (26 Mar 2022)

Peanuts20 said:


> Paying down a mortgage or into a pension won't fund that.


Paying down the mortgage will free up equivalent cashflow though.

It makes no sense to have cash on deposit for an expense in 20 years while paying interest on a mortgage at 2.x% for twenty years.


----------



## misemoi (26 Mar 2022)

Will your current home work as your family expands ? You mention no plans to move or extend but would like 4 children?


----------



## Axlmac2 (26 Mar 2022)

misemoi said:


> Will your current home work as your family expands ? You mention no plans to move or extend but would like 4 children?



Hi Misemoi. Short answer yes for 3 and 4 at a stretch so we'd be covered in this scenario

Longer answer we'd probably review the points you made after kid 3 or 4 (if we're lucky enough to have them) and then consider a pivot in the plan if new house is required by wife!


----------



## Clamball (26 Mar 2022)

Don’t be guilty about the health cover.  If you take out a family plan you can avail of day to day expense cover, annual heathland screening.  

When you have a stressful job it is handy to check the heart, blood pressure, cholesterol regularly.  The GPs tend not to do full MOT’s but rather do checks when you present with symptoms.  

Also with 3/4 kids those quick access clinics are great for nasty cuts, badly twisted ankles, broken limbs, item in the ear.  All of these things happen at 6 pm on a Friday of a bank holiday in my experience.   Sitting with the kid with the possible broken arm in A&E for 9 hours or in and out in an hour in a fast clinic… 

If you are majorly sick the health insurance makes no difference, use the HSE all the way but otherwise it makes stuff way less stressful.


----------



## misemoi (26 Mar 2022)

Ditto on the health cover...even digital gp is handy on weekends, and there will be any amount of tumbles with a few kids. I'm surprised your employer doesn't offer it?


----------



## Axlmac2 (16 Aug 2022)

It's only been a short period since my original post but I wanted to write back to thank everyone who contributed and scope out some new advice.

Rather than go through all the changes I've made since my post (in short I actioned most recommendations) I have decided to post my updated position.

*Personal details*

Age: 34

Spouse’s/Partner's age: 34

*Number and age of children:*

2 under 2

Ideally 3 or 4

*Income and expenditure*

Annual gross income: 143k + up to 30% bonus

Annual gross income of spouse: 50k

Monthly take-home pay: Approx 9500e

Both privately employed

Saving approx 4000 per month - this is conservative etc because of a few variables here: 

1 wife currently on paid mat but will soon go on unpaid mat (so est 2500 for 6 months next year)
2 New salary still to kick in
3 Some big one off expenses next 3 months 

*Summary of Assets and Liabilities*

Family home worth approx: 600k - recently valued

Mortgage: 205k

Cash: €20k

Pension fund: Approx 100k

Lender: Avant

Interest rate: 1.95% 4 year fixed

*Other borrowings – car loans/personal loans etc*

None

*Buy to let properties*

None

*Other savings and investments:*

Both have pension scheme

Me: 6% me + 8% employer + 2% on AVCs
Partner: 5% her + 5% employer

*Other information which might be relevant*

Mortgage protection
Employer death in service - 10x my gross
Private healthcare
No illness income protection

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

Since my original post I've made a 115k mortgage overpayment & switched to Avant, bought the planned car and got health insurance. However I did not take action on my pension which I know there was a strong case for. This was primarily driven by my risk threshold i.e. if my wife stops working after next baby I am keen to keep costs as low as possible.

However what I am really looking for advice on is what I should do now with the additional savings we make.

My ultimate goal in 6 years time is to

1. Build a home but keep our exisitng house
2. Be in a postion to do this without needing to rent our exisitng house

For reasons I won't go into here I forecast a build at 700k (i.e land not an issue although I recognise other variables will impact cost and feasibility)

For this scenario should I:

1. Start putting my savings aside for this to reduce a second mortgage?
2. Use my savings to paydown my existing mortgage (up to 10% per year) to get it as low as possible?
3. Get real and give up the notion of two homes and start maxing out pension


----------



## Brendan Burgess (16 Aug 2022)

Axlmac2 said:


> Age: 34





Axlmac2 said:


> Annual gross income: 143k + up to 30% bonus
> 
> Annual gross income of spouse: 50k





Axlmac2 said:


> Mortgage: 205k



Your mortgage of €205k is very comfortable given your salary and your 1.95% rate. 

A €100k pension pot is ok for your age.  In normal circumstances, I would suggest maxing it. 

Brendan


----------



## Brendan Burgess (16 Aug 2022)

Axlmac2 said:


> My ultimate goal in 6 years time is to
> 
> 1. Build a home but keep our exisitng house
> 2. Be in a postion to do this without needing to rent our exisitng house



This is a strange goal. 

I could imagine trading up from a €300k house to a €700k house and keeping it.
But keeping a €600k house while building a house for €700k doesn't seem right. 

By all means keep it, if possible, while building your new house.  But why would you keep two great houses in the long-term? 

It's a very expensive indulgence and you would be better off stuffing your pension.

Brendan


----------



## cremeegg (16 Aug 2022)

Congratulations on the new arrival !


----------



## Brendan Burgess (16 Aug 2022)

However, if you have thought it through, and that is your goal, then you should not  contribute to your pension fund or overpay your mortgage anymore. 

You should invest the savings in an equity fund of some sort until your plans become more concrete.  Then get out of the equity fund about a year before you will be spending money. 

Brendan


----------



## Brendan Burgess (16 Aug 2022)

Axlmac2 said:


> Current end of 2022 plan is to:
> 
> - Pay 120k off mortgage





Axlmac2 said:


> Lender: PTSB
> 
> Interest rate: 2.8% fixed finishing August 2022





Axlmac2 said:


> Interest rate: 1.95% 4 year fixed





Itchy said:


> Switch the mortgage to Avant or Bank of Ireland today for 1.95%, saving 2.5k per year. Pay down your mortgage by whatever is left after maxing your pension tax relief.



Great to see someone doing what they are told!   Your switch to Avant will save you a lot of money.

Brendan


----------



## Clamball (20 Aug 2022)

So €205K left on mortgage and in 6/7 years time you want to build €700K house, and retain current house.

You are saving €4K per month, so estimate this stays constant as your salary increases, you have baby 3&4 and your spouse gives up work.

In 6 years you will have €288K cash, anything extra saved should go to paying down the mortgage.  I see you got a nice uplift in salary so use bonuses etc to clear this to 0 in 6 years.  Then you can get potential €500K mortgage plus your €300K savings to build.

It sounds doable, but you are probably not going to be able to maximise pension savings for you both at the same time.  You will have assets of over €1M with both houses but if you become incapacitated, loose your job or any other disaster, it may all come tumbling down.  Everything rests on you being a large earner for the whole family.  

I am imaging you with a home in the city and a holiday home by the sea with you the wife and kids having a fab lifestyle in the city for term time and on/by the sea otherwise.  Go for it!


----------

