# 350K savings - Put to mortgage, AVCs or mid-term investment fund?



## SkyLight (28 Jan 2022)

*Age:* 46
*Spouse’s/Partner's age:* 50

*Annual gross income from employment or profession*
€101k + 20-25% Bonus - Private Sector

*Annual gross income of spouse*
€90k - Public Sector

*Combined monthly take-home pay Net*
€7,600

*Type of employment *
See above

*In general are you
(a) spending more than you earn?*
No
*(b) saving?*
We’re saving around €1,000 a month now in a regular saver plus I save most of my annual bonus.

*Rough estimate of value of home*
€850,000

*Amount outstanding on your mortgage:*
€295,000 @ €2,300 per month

*What interest rate are you paying?*
2.5%, 3 yr fixed with 12.5 years left on the term

*Other borrowings – car loans/personal loans etc*
None, except rental property below

*Do you pay off your full credit card balance each month?*
Yes

*Savings and investments:*
Combined €340k in savings accounts  <1% interest

*Do you have a pension scheme?
Me - *15% employer contributes  + 25% AVCs - Estimated pension at 65 is 70K per year
*Spouse -* Public sector contribution + 600 per month in AVC - Estimated pension at 65 is 30K per year

*Do you own any investment or other property?*
Own a rental property worth €290k with a mortgage of approx. €160k. The rental income is €1,600 a month and the mortgage is around €910/month + €220/month in management fees. 15 years remain on mortgage. Tracker ECB + 0.6%

*Ages of children:* 6 & 9

*Life insurance:* Mortgage protection only on both policies

As our savings are accumulating and not earning any interest, we're planning to make some changes.  We're also starting to think about retirement and life cover. This is what we are thinking at the moment.

* Pay 200K off primary residence mortgage now. As we are locked into a 3yr fixed rate mortgage with PTSB (with 2.5 years left on fixed term), we cannot alter payments now but we can deposit the a lump sum to the mortgage account as a credit. In 2.5 years,  they will adjust the balance accordingly and by our estimate, we'll only have 1 year left and will save ourselves 45K in interest.

* I have a Death in Service Benefit of x4 times salary + spousal annuity. Not sure of public service Death in Service Benefit so considering take out a life insurance policy for 15 years for 500K

* My spouse is not maxing out his AVCs so I thought we should increase these. However a financial advisor said this was not tax efficient and that we should invest in a managed fund instead, with with 1.5% management fees.

* Keep the apartment as the interest rate is low and hoping it will be an extra income in retirement.

* As we need to replace cars in the next 5 years and do some home improvements, we're planning to keep 150K on deposit, though possibly put some in a bond.

Questions, does the plan above make sense? Should we increase the AVCs or invest in a managed account. Does it still make sense to deposit that lump sum to mortgage? We could pay it all off now but there will be breakage fees and it would consume the bulk of our savings.  Does it make sense to keep the apartment?

Ideally I would like to retire in 15 years at 61. My spouse plans to work until 65.

Many thanks.


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## Marc (28 Jan 2022)

We covered this in detail here 









						Should I Overpay my Mortgage or Pay into a Pension? - Everlake
					

As with many things, the right course of action is going to be specific to your individual financial circumstances.




					globalwealth.ie
				




Essentially paying into an investment product only benefits the broker

Either make AVCs or pay down debt


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## 50andOut (28 Jan 2022)

SkyLight said:


> * My spouse is not maxing out his AVCs so I thought we should increase these. However a financial advisor said this was not tax efficient and that we should invest in a managed fund instead, with with 1.5% management fees.



They actually said it's NOT tax efficient to max out AVC?

Can you ask them to explain this?


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## SkyLight (28 Jan 2022)

He said the reason is that if my spouse puts in anymore, the balance of the fund will not be tax efficient. He explained "40% savings with tax relief while you are actually saving and then pay 40% when drawing it down. " 

It made little sense to me.


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## SkyLight (28 Jan 2022)

Marc said:


> We covered this in detail here
> 
> 
> 
> ...


Thank you Marc, this is really helpful


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## ClubMan (29 Jan 2022)

SkyLight said:


> He said the reason is that if my spouse puts in anymore, the balance of the fund will not be tax efficient. He explained "40% savings with tax relief while you are actually saving and then pay 40% when drawing it down. "
> 
> It made little sense to me.


Has his pension reached a valuation of €800k+ perhaps?





						Key Post - My pension pot has reached €800k - should I stop contributing ?
					

I am starting a new role in a company that does not have a pension scheme. They will offer a PRSA as they are legally obliged to do but they is no offer of contribution. I am aged 51 and I have other pensions that mean that all my future income will be at the higher rate of tax. Am I correct in...



					www.askaboutmoney.com


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## ClubMan (29 Jan 2022)

SkyLight said:


> *Me - *15% employer contributes  + 25% AVCs - Estimated pension at 65 is 70K per year
> *Spouse -* Public sector contribution + 600 per month in AVC - Estimated pension at 65 is 30K per year


The estimated pensions at retirement are just that - estimates. Don't place too much faith in them.


SkyLight said:


> * I have a Death in Service Benefit of x4 times salary + spousal annuity. Not sure of public service Death in Service Benefit so considering take out a life insurance policy for 15 years for 500K


You should clarify all existing work related cover and carefully assess your needs before taking out any separate cover.


SkyLight said:


> * Keep the apartment as the interest rate is low and hoping it will be an extra income in retirement.


Is it paying its way right now?
c. €400 p.m. "profit" before tax and other expenses seems marginal?


SkyLight said:


> * As we need to replace cars in the next 5 years and do some home improvements, we're planning to keep 150K on deposit, though possibly put some in a bond.


What do you mean by "bond" here?


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## SkyLight (30 Jan 2022)

ClubMan said:


> You should clarify all existing work related cover and carefully assess your needs before taking out any separate cover.


I clarified that the death in service benefit in the public sector is 1x salary. Mine is 4x salary. The financial planner estimated a shortfall and recommended 500K in additional life cover.


ClubMan said:


> Is it paying its way right now?
> c. €400 p.m. "profit" before tax and other expenses seems marginal?


The gross profit is marginal at the moment and after tax is paid, it costs me approx 2K per year. However with the low interest rate, i'm paying off about 9K in principal per year.


ClubMan said:


> What do you mean by "bond" here?


A 5 year govt. savings certificate.


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## SkyLight (30 Jan 2022)

ClubMan said:


> Has his pension reached a valuation of €800k+ perhaps?
> 
> 
> 
> ...


I've looked into it further. My spouse has a public service pension and will have 26yrs service at retirement. Instead of buying back 14 years an advisor recommended making AVCs to make up the shortfall (but no more). My understanding is that the DB pension and current AVCs will approximate 135 lump sum and 30K pension at 65 (assuming current salary). Current value of AVCs are minimal, as just started.

I'm not sure if it makes more sense to increase AVCs (lump sum or monthly), buy back years or invest. Based on the suggestions above, it sounds like increasing pension in one way or another is still advisable.

Thanks for all the clarifying questions ClubMan and prompting me to look into this more.


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## ClubMan (30 Jan 2022)

I don't think that anybody can say whether buying back years versus doing AVCs is the better option based on the information posted.

What sort of "advisor" were you dealing with? Are they independent and working for a fee or a tied agent working on commission?


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## Brendan Burgess (30 Jan 2022)

Get rid of that financial advisor. They are simply recommending products on which they get commission.

Brendan


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## Brendan Burgess (30 Jan 2022)

You are wealthy. You do not need additional life insurance over what you have with your mortgage protection. 

Life insurance was useful in the old days when the whole family was dependent on the husband's salary.  
If your husband dies, you have your salary, your mortgage-free home and an investment property. 

Brendan


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## Brendan Burgess (30 Jan 2022)

SkyLight said:


> * As we need to replace cars in the next 5 years and do some home improvements, we're planning to keep 150K on deposit, though possibly put some in a bond.



Forget about the cars. You are saving a lot of money and will be able to fund them when the time comes. No need to keep separate money for them. 

When are you planning to do your home improvements?  And how much will they cost? 

If it's in the next two years, then keep the money on deposit. No bonds or anything else which might have restricted access.


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## Brendan Burgess (30 Jan 2022)

Here is what I would suggest.
1) Clear your mortgage in full. This will leave you with €45k cash.
2) You will continue to save your €1k per month.
3) You will also save the €2,300 per month in mortgage payments. 
4) You will get a bonus of about €15k net
5) At the end of 2022, you will have built up your savings to €100k
6) At the end of 2023, you will have built up your savings to €150k 

So it depends on when you will do the extension and how much it will cost. 

If you are planning to do it before the end of next year and if it will be more than €150k, then keep enough cash aside rather than repay your mortgage. 

Brendan


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## Brendan Burgess (30 Jan 2022)

SkyLight said:


> *Do you own any investment or other property?*
> Own a rental property worth €290k with a mortgage of approx. €160k. The rental income is €1,600 a month and the mortgage is around €910/month + €220/month in management fees. 15 years remain on mortgage. Tracker ECB + 0.6%



Yes, it makes sense to keep the apartment. 

You are paying about €1k interest and €3k in costs or €4k in total for €20k rental income. This is very profitable


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## Brendan Burgess (30 Jan 2022)

SkyLight said:


> *Spouse -* Public sector contribution + 600 per month in AVC - Estimated pension at 65 is 30K per year





SkyLight said:


> * My spouse is not maxing out his AVCs so I thought we should increase these. However a financial advisor said this was not tax efficient and that we should invest in a managed fund instead, with with 1.5% management fees.





SkyLight said:


> He said the reason is that if my spouse puts in anymore, the balance of the fund will not be tax efficient. He explained "40% savings with tax relief while you are actually saving and then pay 40% when drawing it down. "
> 
> It made little sense to me.





SkyLight said:


> . My spouse has a public service pension and will have 26yrs service at retirement. Instead of buying back 14 years an advisor recommended making AVCs to make up the shortfall (but no more). My understanding is that the DB pension and current AVCs will approximate 135 lump sum and 30K pension at 65 (assuming current salary). Current value of AVCs are minimal, as just started.
> 
> I'm not sure if it makes more sense to increase AVCs (lump sum or monthly), buy back years or invest. Based on the suggestions above, it sounds like increasing pension in one way or another is still advisable.



This is probably the most difficult part. 

Brokers advise you to make AVCs because they make continuous commission.
It is usually advisable to buy back years instead.

But it's clear that you should do one or the other. 

Does your husband have access to any sort of pensions advisor through his trade union? Having said that, some of the unions did deals with financial advisors and ended up telling teachers that they should buy AVCs. 

I tried to get my head around it years ago and the factors have probably changed since. 





__





						Should I buy years or contribute to an AVC/PRSA?
					

Should I buy years or contribute to an AVC/PRSA?         [Written by Brendan Burgess based primarily on data provided by George O’Sullivan]      A public servant may buy years not worked or “earned ” to bring one up to full pension or close to it at normal or early retirement at age 60. This is...



					www.askaboutmoney.com


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## SkyLight (30 Jan 2022)

Brendan Burgess said:


> Here is what I would suggest.
> 1) Clear your mortgage in full. This will leave you with €45k cash.
> 2) You will continue to save your €1k per month.
> 3) You will also save the €2,300 per month in mortgage payments.
> ...


Thanks Brendan for all your advice. This all makes a lot of sense. The home improvements won't be more than 50K so clearing the mortgage in full is viable if the breakage fees are reasonable. Waiting on the bank to confirm the cost.


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## Brendan Burgess (30 Jan 2022)

SkyLight said:


> clearing the mortgage in full is viable if the breakage fees are reasonable.



When you get the figures, post them here.

It still usually makes sense to break out.

Brendan


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## SkyLight (30 Jan 2022)

Brendan Burgess said:


> Yes, it makes sense to keep the apartment.
> 
> You are paying about €1k interest and €3k in costs or €4k in total for €20k rental income. This is very profitable





Brendan Burgess said:


> When you get the figures, post them here.
> 
> It still usually makes sense to break out.
> 
> Brendan


Will do and thank you.


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## SkyLight (30 Jan 2022)

Brendan Burgess said:


> This is probably the most difficult part.
> 
> Brokers advise you to make AVCs because they make continuous commission.
> It is usually advisable to buy back years instead.
> ...


The advisor we spoke with works for a pensions and life insurance company that advises public servants -- so possibly not the most impartial source of advise. 

Thank you for the link to the post above. Its clearly a more complicated decision than I realised. Next step is to clarify the cost to buy back years as a point of comparison.


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## Gordon Gekko (30 Jan 2022)

SkyLight said:


> The advisor we spoke with works for a pensions and life insurance company that advises public servants -- so possibly not the most impartial source of advise.
> 
> Thank you for the link to the post above. Its clearly a more complicated decision than I realised. Next step is to clarify the cost to buy back years as a point of comparison.


Ah, those guys…

Begins with a ‘C’, ends with a ‘T’, and there’s an ‘N’ in there too…


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## SkyLight (30 Jan 2022)

Gordon Gekko said:


> Ah, those guys…
> 
> Begins with a ‘C’, ends with a ‘T’, and there’s an ‘N’ in there too…


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## Brendan Burgess (31 Jan 2022)

Just to clarify.

If you are being advised by Cornmarket, you should go elsewhere.

They are owned by Irish Life so guess whose AVCs will probably be recommended. 

Brendan


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