# Cash surplus, what to do? Early retirement possibility? Middle age couple no children



## Beachclub174 (25 Feb 2021)

Hi everyone,

I am new to the boards and was looking for advice in terms of financial planning. Our intention is to retire (in Spain) as early as possible, making sure we have a decent enough level of income to live on. We have no children and we save money that is not really making any return. Before Covid the largest expense was holidays (6/7 trips a year around EU destinations for 1 week or couple of days each time)

*Age:* 44
*Spouse’s/Partner's age:* 51

*Annual gross income from employment or profession:* €46,000 civil service (reaching €60,000 in 4 years)
*Annual gross income of spouse: *€105,000 public sector (final salary to retire)

*Monthly take-home pay: *me €2,700 Spouse - €4,680 = €7,380

*Type of employment: *both civil service/public sector

*In general are you: (b) saving?* Saving

*Rough estimate of value of home:* €350,000 (Bought for €200K) (would sell or rent to finance property in Spain) *Amount outstanding on your mortgage: *€90,000 (repayments of €651 @2.75% for 14 years- ends January 2035)

*Other borrowings – car loans/personal loans etc: none
Do you pay off your full credit card balance each month? *Yes

*Savings and investments: *Cash: €130,000 (€40K between credit union, regular savings account, savings account and €90K Prize bonds)

*Do you have a pension scheme?*
Yes. The scheme attached the public sector for both of us, different joining dates and terms and conditions.

*Me*: Minimum retirement age 65 (55 with reduced benefits – might consider) Will have 21 years of service at age 55 – estimated lump sum tax free €36K and €4.5K annual pension. Will qualify for state pension at 68.

*Spouse*: Minimum retirement age 60 (50 with reduced benefits – no intention to avail of it). Will have 30 years of service at age 60 – estimated lump sum tax free €115K and €30K annual pension from scheme. I think spouse also qualifies for the “bridge” supplementary pension which is the same as the state pension for €12.6K. Might bring the total pension at age 60 to €42K – (might have the supplementary pension assumption wrong, need to investigate more)

*Do you own any investment or other property?* Yes, 2 in Dublin.

*One
Rough estimate of value of home:* €200,000 (Bought for €170K
*Amount outstanding on your mortgage: *€60,000 (repayments of €650 @Tracker for 7 more years) Will be paid off before Spouse retires.
*Annual rental income*: €14K gross

*Two
Rough estimate of value of home:* €240,000 (bought for €82K- has 7 years CG tax exemption)
*Amount outstanding on your mortgage: *€50,000 (repayments of €254 @2.3% for 23 more years)
*Annual rental income*: €18K gross

*Revenue taxes:* Paying around €8K per year on taxes for rental income after making all possible deductions (accountant, management agent, repairs, insurance, etc.)

*Ages of children:* none
*Life insurance: *only the life protection that we all have with mortgages. No other policies, except for death benefits attached to public sector workers.

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

1. What to do with the cash we have and that we keep saving? I’m not a fan of paying off all mortgages as I prefer to keep the money in case some better investment opportunity arises. Would it be better to reduce some of my mortgage on my principal residence? We are risk averse regarding investment options, so any advice is welcome.

2. Pension: I read about AVCs but haven’t decided to start any yet. I was planning on making lump sum contributions as retirement age approaches for Spouse and maximise the tax free lump sum- shortfall of approx. €42.5K. If I intend to retire at 55 with reduce benefits, shall I start an AVC now or also wait until I am 50 to make lump sum contributions? No sure about building a fund on top of the lump sums. Is this a missed opportunity?


3. Investment property number Two has a 7 years CG tax exemption as it was bought in 2014 and has a lot of equity built up. It is also bringing the most rental income. Shall I consider cashing in this asset to avail of the CG exemption or better keep it for the future as a passive income source? The debt on it is low (€50K), so we could cancel it if need to.


Overall I feel that our position is good, but the idea of retiring at 55 when my Spouse will be 62 (and retired also) makes me feel vulnerable, although I could get part time work should anything happen. Would it be wise to engage the services of a financial planner to explore better options?
Any suggestions for our situation would be greatly appreciated.


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## _OkGo_ (25 Feb 2021)

Beachclub174 said:


> What to do with the cash we have and that we keep saving? I’m not a fan of paying off all mortgages as I prefer to keep the money in case some better investment opportunity arises. Would it be better to reduce some of my mortgage on my principal residence? We are risk adverse regarding investment options, so any advice is welcome.


This does not make sense. If you are risk averse then your best option is to clear the mortgage. If you do not clear it, it is because you believe you can get a gross return greater than 6-7% to justify not clearing the mortgage. There will always be an inherent risk if you want returns at that level




Beachclub174 said:


> *Revenue taxes:* Paying around €8K per year on taxes for rental income after making all possible deductions (accountant, management agent, repairs, insurance, etc.)


This also does not appear to be correct. You have gross rental income of €32k and BTL interest of ~€2k. For you to only have an €8k tax bill, you must have €14k of additional expenses!! That does not sound feasible


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## Beachclub174 (25 Feb 2021)

_OkGo_ said:


> This does not make sense. If you are risk averse then your best option is to clear the mortgage. If you do not clear it, it is because you believe you can get a gross return greater than 6-7% to justify not clearing the mortgage. There will always be an inherent risk if you want returns at that level
> 
> 
> 
> This also does not appear to be correct. You have gross rental income of €32k and BTL interest of ~€2k. For you to only have an €8k tax bill, you must have €14k of additional expenses!! That does not sound feasible


Thanks for you views.

The investment properties have expenses of approx. €7,150 (management fees as they are apartments and agents fees for managing the property- 8.25% +vat). On top of that we deduct €1,800 mortgage interest, plus another €1,000 (accountant, landlord insurance and mortgage life insurance). Then you have repairs for €960 for 2019 returns. So rental income @€32K minus €10K in expenses leave us with €22K approx. on top of our PAYE salaries. At a tax rate of 40% it comes to €8.8K. These are roughly the numbers from my last tax returns. Then you have to add medical expenses and some capital allowance that last for 8 years since the initial rental and end up paying those €8K to Revenue. In reality we paid €12K for 2019 since you are charged €8K for 2019 and I think 50% for preliminary tax for 2020.  (I could be wrong but I have an account to do the returns, so I expect them to be accurate)

Regarding the "risk averse quote", I  was trying to hint that we are not interested in shares or high return risky investments where you can loose some or all of you initial capital. I was hoping to get ideas of more conservative investments with a moderate return that at least will guarantee your initial investment.

Thanks


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## Early Riser (25 Feb 2021)

Beachclub174 said:


> Will have 30 years of service at age 60 – estimated lump sum tax free €115K and €30K annual pension from scheme. I think spouse also qualifies for the “bridge” supplementary pension which is the same as the state pension for €12.6K


 If he is retiring with 30 years service the maximum Supplementary he would qualify for is 3/4 (30/40) of the full rate State pension. Terms an conditions apply (essentially, that he not be engaged in any insurable employment or self-employment, and not be receiving, or eligible to receive, a contributory social welfare benefit, eg, Jobseekers Benefit).



Beachclub174 said:


> Will have 21 years of service at age 55 – estimated lump sum tax free €36K and €4.5K annual pension. Will qualify for state pension at 68.


 
The amount of State Pension you may qualify for is dependent on your *total* PRSI record (and eligibility criteria at 68). You would need to ensure that you maintain your record with relevant contributions, or credits, after 55 if you want to maximise your eligibility.


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## Tuscany (25 Feb 2021)

If spouse can increase annual pension at age 60, then seriously consider purchasing additional years service.  Has spouse the option?  What is maximum possible service for spouse at age 60?   

If it is possible to purchase years, spouse would increase annual pension and lump sum at age 60 and will get tax benefit in intervening years for purchasing.  Worth checking how many years can be purchased and then do the calculations.  Based on salary this could be quite beneficial and a better option than AVCs especially with benefit of an ongoing recurring annual extra pension pension as well as increased lump sum.   
You need to clarify the supplementary pension as 12.6k is significant.  

You probably have option of purchasing added years or AVCs.  We are currently researching how possible early retirement would work in the event of purchasing added years and it's quite complicated.  From what we've learnt so far, we're a little doubtful about buying back years if early retirement is planned.  You seem confident of retirement at 55 so you should check out how that would work.  You can make an assessment against AVCs, but certainly you should consider both as serious options. 

Your salary will rise substantially in next few years so you should keep that in mind in event of buying service.


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## Beachclub174 (25 Feb 2021)

Early Riser said:


> If he is retiring with 30 years service the maximum Supplementary he would qualify for is 3/4 (30/40) of the full rate State pension. Terms an conditions apply (essentially, that he not be engaged in any insurable employment or self-employment, and not be receiving, or eligible to receive, a contributory social welfare benefit, eg, Jobseekers Benefit).
> 
> 
> 
> The amount of State Pension you may qualify for is dependent on your *total* PRSI record (and eligibility criteria at 68). You would need to ensure that you maintain your record with relevant contributions, or credits, after 55 if you want to maximise your eligibility.


Thanks for the info Early Riser.


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## Beachclub174 (26 Feb 2021)

Tuscany said:


> If spouse can increase annual pension at age 60, then seriously consider purchasing additional years service.  Has spouse the option?  What is maximum possible service for spouse at age 60?
> 
> If it is possible to purchase years, spouse would increase annual pension and lump sum at age 60 and will get tax benefit in intervening years for purchasing.  Worth checking how many years can be purchased and then do the calculations.  Based on salary this could be quite beneficial and a better option than AVCs especially with benefit of an ongoing recurring annual extra pension pension as well as increased lump sum.
> You need to clarify the supplementary pension as 12.6k is significant.
> ...


Thanks Tuscany. You need 40 years to have the full benefits in the civil service (approx. half your salary as a pension and 1.5 times your final salary as a lump sum) My spouse would be short of 10 years service. I'm in the process of finding out the "buying back years" option, but  I heard that is pretty expensive. Will know when I get the information in front of me.


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## NoRegretsCoyote (26 Feb 2021)

Having a €90k PPR mortgage and €90k in Prize Bonds makes zero sense.

Turn it on its head. If you had no mortgage, would you take one out to pay prize bonds? Of course not!


Liquidate and pay off the mortgage ASAP.


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## Early Riser (26 Feb 2021)

Tuscany said:


> If spouse can increase annual pension at age 60, then seriously consider purchasing additional years service. Has spouse the option? What is maximum possible service for spouse at age 60?
> 
> If it is possible to purchase years, spouse would increase annual pension and lump sum at age 60 and will get tax benefit in intervening years for purchasing. Worth checking how many years can be purchased and then do the calculations. Based on salary this could be quite beneficial and a better option than AVCs especially with benefit of an ongoing recurring annual extra pension pension as well as increased lump sum.


 He could purchase up to 10 years. I reckon about €27,000 per year of service purchased if done now by lump sum, or about €3,050 annually (index linked to salary) per year purchased if started now by ongoing salary deduction to 60. Tax allowable.  

@Beachclub174 - How many years service have you to date ?


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## _OkGo_ (26 Feb 2021)

Beachclub174 said:


> The investment properties have expenses of approx. €7,150 (management fees as they are apartments and agents fees for managing the property- 8.25% +vat). On top of that we deduct €1,800 mortgage interest, plus another €1,000 (accountant, landlord insurance and mortgage life insurance). Then you have repairs for €960 for 2019 returns. So rental income @€32K minus €10K in expenses leave us with €22K approx. on top of our PAYE salaries. At a tax rate of 40% it comes to €8.8K. These are roughly the numbers from my last tax returns. Then you have to add medical expenses and some capital allowance that last for 8 years since the initial rental and end up paying those €8K to Revenue. In reality we paid €12K for 2019 since you are charged €8K for 2019 and I think 50% for preliminary tax for 2020. (I could be wrong but I have an account to do the returns, so I expect them to be accurate)



Ok that makes more sense, so you are actually paying IT, USC & PRSI (40%, 8% & 4%) on €22k so you have a net return of ~€11k. I misunderstood your initial post as the €8k taxes was inclusive of PRSI & USC so I assumed your gross profit was closer to €16k. 



Beachclub174 said:


> Regarding the "risk averse quote", I was trying to hint that we are not interested in shares or high return risky investments where you can loose some or all of you initial capital. I was hoping to get ideas of more conservative investments with a moderate return that at least will guarantee your initial investment


I understand you don't want to lose money but you need to look at this from a different perspective. You already have 330k equity invested in rental properties where the value can go up and down. You could (on paper) lose a chunk of your investment value if property prices were to drop but you probably don't consider this as lost because you 'own' the properties and you have no need to sell them at the bottom so you can wait it out until the value returns.

Your approach to risk should be balanced with your ability to ride out those drops in value, whether in property or equities. You have a healthy combined income and effectively guaranteed employment in public/civil service with very few financial commitments so whatever you invest in, you should be very comfortable to play a waiting game for long term growth to benefit you. But if you want no risk at all, then your best course of action is to clear your PPR mortgage.


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## NoRegretsCoyote (26 Feb 2021)

Early Riser said:


> You would need to ensure that you maintain your record with relevant contributions, or credits, after 55 if you want to maximise your eligibility.



If they have net rental income of €5k each they will pay €500 flat-rate PRSI Class S which gives you 52 contributions for PRSI purposes. This should be feasible if they keep at least one of the BTLs.

But tax residence can be an issue here if they go to Spain. Non-residents aren't obliged to pay Class S PRSI on rental profits, and so don't accrue the benefits. They could make voluntary contributions of course, but this would be more expensive.


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## Beachclub174 (26 Feb 2021)

NoRegretsCoyote said:


> Having a €90k PPR mortgage and €90k in Prize Bonds makes zero sense.
> 
> Turn it on its head. If you had no mortgage, would you take one out to pay prize bonds? Of course not!
> 
> ...


Thanks, I will consider that option.


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## Beachclub174 (26 Feb 2021)

Early Riser said:


> He could purchase up to 10 years. I reckon about €27,000 per year of service purchased if done now by lump sum, or about €3,050 annually (index linked to salary) per year purchased if started now by ongoing salary deduction to 60. Tax allowable.
> 
> @Beachclub174 - How many years service have you to date ?


I have 13 years of service in the public sector so far. For spouse €27K for 10 years seems reasonable, I thought it could be more money. We still need to have the real information from HR which we are chasing.Thanks again for your contribution


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## Early Riser (26 Feb 2021)

Beachclub174 said:


> I have 13 years of service in the public sector so far. For spouse €27K for 10 years seems reasonable, I thought it could be more money. We still need to have the real information from HR which we are chasing.Thanks again for your contribution



€27,000 *per year* purchased, ie, €270,000 for 10 years !

See Tables 5 & 6 in Appendix 2 here: http://www.cspensions.gov.ie/SuperannuationHandbookandGuidanceDec20061.pdf


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## Beachclub174 (26 Feb 2021)

NoRegretsCoyote said:


> If they have net rental income of €5k each they will pay €500 flat-rate PRSI Class S which gives you 52 contributions for PRSI purposes. This should be feasible if they keep at least one of the BTLs.
> 
> But tax residence can be an issue here if they go to Spain. Non-residents aren't obliged to pay Class S PRSI on rental profits, and so don't accrue the benefits. They could make voluntary contributions of course, but this would be more expensive.


Thanks for the heads up regarding PRSI if relocating. I was not aware I would have to pay more taxes in Ireland. I assume you could decide to pay taxes in Spain for all your income once you are a resident in Spain.


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## NoRegretsCoyote (26 Feb 2021)

Beachclub174 said:


> I was not aware I would have to pay more taxes in Ireland.



My point is that non-resident owners of Irish rental property are not obliged to pay Class S PRSI. From DSP:



> *Who does not pay Class S PRSI?
> 
> • people classified by Revenue as non residents who
> hold solely unearned income,*



So for example if you are retired and non-resident aged 62 you wouldn't be obliged to pay Class S PRSI on your Irish rental income. But you wouldn't be building up eligibility for state pension anymore either, which is is worth much more than the PRSI than you would pay if you were resident. You could pay voluntary PRSI to build up your record, but this is generally more expensive.

Pay for professional advice on the residency part for Ireland and Spain. It'll be worth it.


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## Early Riser (26 Feb 2021)

Beachclub174 said:


> Will have 21 years of service at age 55





Beachclub174 said:


> I have 13 years of service


 
If you are 44 now then should you not have 24 years service at 55 ?

Anyway, according to Table 2 it would cost you 28% of salary to purchase *one* year of notional service now. So about €12,900 *per year* purchased on a salary of €46,000. If you can afford it, and you are expecting a significant rise in the coming years, it might be worth considering some notional service purchase :


Beachclub174 said:


> *Annual gross income from employment or profession:* €46,000 civil service (reaching €60,000 in 4 years)


 
A lump sum notional servcie purchase now does not preclude a "last minute" AVC at retirement to top up your tax-free lump sum to the max Revenue will allow.


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## Beachclub174 (26 Feb 2021)

Thanks for the clarification Early Riser

I will have 24 years probably, but I always quote less as I might take career break or shorter working year until then, so I rather have a more pessimistic estimation.

I will definitely top up lump sum for spouse and myself to avail of tax breaks. I will have to analyse the buying back years (spouse and I) and decide if we are willing to lock all that money away until we reach the qualifying age. After all, since we have no kids we have the challenge of surviving all possible "health hurdles"  and not dying before we are 60 . This is probably another topic, but we also think about how we will liquidate assets and spend them after retirement, since accumulating more wealth is pointless as we don'y have heirs and we have no interest in leaving assets to siblings, nephews, etc.


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## Beachclub174 (26 Feb 2021)

Thanks NRCoyote. I have already been looking at getting advice on residency and also regarding claiming the state pension in Spain since the qualifying age is 65 (at least for now). I know it might be lower in value but just exploring options. Plus rental income taxes in Spain are lower than in Ireland.


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## NoRegretsCoyote (26 Feb 2021)

Beachclub174 said:


> Thanks NRCoyote. I have already been looking at getting advice on residency and also regarding claiming the state pension in Spain since the qualifying age is 65 (at least for now). I know it might be lower in value but just exploring options. Plus rental income taxes in Spain are lower than in Ireland.


Not the expert but I don't think you could accrue pension eligibility in Spain unless you have employment or self-employed income there.

As a pre-2013 public servant you may qualify for a supplementary pension if you retire at 65 and state pension age (67 or 68). This would "top up" your PS pension with the equivalent of the state pension for the few years. @Early Riser might be able to confirm.


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## Early Riser (26 Feb 2021)

NoRegretsCoyote said:


> As a pre-2013 public servant you may qualify for a supplementary pension if you retire at 65 and state pension age (67 or 68


Correct. Not the full rate of State Pension but proportional to years of PS service, eg, if 24 years then 24/40* State Pension. Same terms and conditions as per spouse apply. Assuming the new interim payment from 65 remains temporary (?).


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## Beachclub174 (26 Feb 2021)

Thanks for  the advice regarding the supplementary pension.  I don't really think I will work until 65 unless something dramatic changes. 
As far as I am aware, you can claim your state pension in any EU member state you are living at the time you reach retirement age. Different terms and conditions will apply depending which country you are living  in. For example in Spain you need a minimum of 15 years contributions while in Ireland I believe is 10 years. (other conditions also apply)


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## NoRegretsCoyote (26 Feb 2021)

Beachclub174 said:


> As far as I am aware, you can claim your state pension in any EU member state you are living at the time you reach retirement age.


No. Not unless you've worked there.

You will get a contributory state pension paid from Ireland to an account of your choice.

You may have to deal with Spanish tax authorities depending on income and residency. You won't have any social security pension in Spain.


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## NoRegretsCoyote (26 Feb 2021)

Beachclub174 said:


> As far as I am aware, you can claim your state pension in any EU member state you are living at the time you reach retirement age.


No. Not unless you've worked there.

You will get a contributory state pension paid from Ireland to an account of your choice.

You may have to deal with Spanish tax authorities depending on income and residency. You won't have any social security pension in Spain.


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## Beachclub174 (26 Feb 2021)

NoRegretsCoyote said:


> No. Not unless you've worked there.
> 
> You will get a contributory state pension paid from Ireland to an account of your choice.
> 
> You may have to deal with Spanish tax authorities depending on income and residency. You won't have any social security pension in Spain.


Thanks again.


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## Bronte (27 Feb 2021)

Beachclub174 said:


> Thanks for the heads up regarding PRSI if relocating. I was not aware I would have to pay more taxes in Ireland. I assume you could decide to pay taxes in Spain for all your income once you are a resident in Spain.


You’ll pay less tax as non resident if your income comes down. Because you will probably no longer be a higher income tax bracket.

But you need to learn if Irish rental income is further liable to Spanish tax.

You will not be eligible for a pension in Spain. If you were living in Spain in a job that would give you rights to a Spanish pension, plus at the relevant age an Irish pension based on service in Ireland.

You need to figure out what income you would like to be on when you retire. Including if one of you pre deceases the other.

You also need to figure out if you should cash in the CGT exempt property.


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## Beachclub174 (27 Feb 2021)

Bronte said:


> You’ll pay less tax as non resident if your income comes down. Because you will probably no longer be a higher income tax bracket.
> 
> But you need to learn if Irish rental income is further liable to Spanish tax.
> 
> ...


Thanks for your info and views.


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## Tuscany (28 Feb 2021)

You are looking nine years ahead and by then your level of cash will be substantially larger with spouse’s lump sum and the disposal of some properties. You are looking for opportunities for cash while being quite risk averse. Your only major expense could be a property purchase abroad. I’m not clear if your intention is to be owner of a home in one of the countries.

Buying years for spouse may be one of the better options but ironically you will be well able to manage that from salary deductions and that probably will have little effect on savings, other than adding more cash in the form of an increased lump sum for spouse at age 60.

Cost of purchase of 10 years will be around 27k per year (gross). That will yield around 40k extra lump sum on retirement and 13.3k per year pension. Is that value?   You are then looking at indexation and life expectancy for both of you to estimate the benefits of the purchase.

Purchasing 10 years’ service I think could cost you net 1,500 approximately per month. Net current take home salary is 7,380 per month and this will increase further when your salary rises by 14k per year in four years. Buying the extra years could be manageable from current take home amount. So that is a quite early decision for you; whereas a lot of the other factors may be less immediate options (other than clearing mortgage).

Buying service for you is much less clearcut because of early retirement implications. You will need your HR to explain that to you.

On state pensions will the surviving one of you be eligible for a pension.

There are big decisions both personal and financial but you are looking nine years. It is reasonable to feel vulnerable as you mentioned. It seems to me that

It would help if you have a clear idea if you are going to have a ppr in at least one country.
You need to clarify as much as you can around state pensions and also implications of Spanish residency on disposal of Irish properties for CGT.
You will be cash and asset rich as your spouse retires but your household salary/pension income drops from165k to over 40k, including spouse’s state pension. Despite your other resources, it’s a serious drop.
You mention about part time work if necessary; is that in Ireland? Instead of retiring at 53 would you consider a career break for up to 5 years and give yourself the option of returning if necessary. You should be able to return on a part time basis. Giving yourself the choice of returning part time to a 60k position might be a better prospect than other part time work maybe at a fraction of the salary in your mid to late 50s. You forego a lump sum of 36k but only a pension of 4.5k but you can still retire after a career break on increased lump sum and pension. Given the likely scale of your cash and other assets this would not have a huge financial impact and it could lessen the feeling of vulnerability.


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## Beachclub174 (6 Mar 2021)

Tuscany said:


> You are looking nine years ahead and by then your level of cash will be substantially larger with spouse’s lump sum and the disposal of some properties. You are looking for opportunities for cash while being quite risk averse. Your only major expense could be a property purchase abroad. I’m not clear if your intention is to be owner of a home in one of the countries.
> 
> Buying years for spouse may be one of the better options but ironically you will be well able to manage that from salary deductions and that probably will have little effect on savings, other than adding more cash in the form of an increased lump sum for spouse at age 60.
> 
> ...


Thanks for the comprehensive reply. I still have some homework to do about living in Spain and access to benefits and tax situation. 
A career break is on the cards for me soon, will explore the buying NS back for 2/3 years.


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## Ryan (7 Mar 2021)

Why wouldn’t you clear the mortgage on your main home?


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