30 somethings, first child, pension and investment options

Looking for advice on where we could make our money work better!

Age: 35
Spouse’s/Partner's age:31

Annual gross income from employment or profession: 65K (incl bonus)
Annual gross income of spouse: 43K

Monthly take-home pay Combined approx. 5K

Type of employment: Me: Private Sector Wife: Civil Servant

In general are you:
(a) spending more than you earn, or
(b) saving? Saving in general – was 600EUR PM until wife went on maternity leave

Rough estimate of value of home: 375K
Amount outstanding on your mortgage: 250K, 23 years remaining, repayments of 1,250PM
What interest rate are you paying? 3%

Other borrowings – car loans/personal loans etc: None

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

Savings and investments: 41K in savings accounts, 9K in company share scheme (sell some of these each year)

Do you have a pension scheme? Yes, Company plan: Company contributes 12%, I pay 5% and make additional AVC of 5%. Have been contributing for 4 years. Currently approx. 43K in fund. Wife: Public sector pension and AVC of 5%

Do you own any investment or other property? No

Ages of children: 8 month old

Life insurance: Yes

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

My wife is currently on maternity leave (full pay for 6 months and is now on unpaid leave) returning to work in May. No problems with covering mortgage payment, bills etc while on unpaid leave.

We have reviewed our finances and are thinking if we should be contributing more to our pensions when she returns to work and how we are using our child benefit.

1. Is it possible to put lump sums into the pension pot at ad-hoc times (aware of the 20% rule due to our age). The thinking behind this is that we are currently comfortable from month to month so would like to do this sooner rather than later to allow the benefit of compounding the interest while we are (relatively!) young and before baby number two comes along in the next few years – plus have only been contributing for a short amount of time. Can we do this with the main pot or can it only be done through the AVC?


We put our Child benefit directly into a savings account for our child and I top this up with 100EUR standing order each month, with a view to having a nice pot of cash for when they are older for college/car/house deposit etc. I view this as our childs money and am therefore reluctant to subject this to any high levels of risk, but should I be looking at something different than a standard savings account to drive a better return (seen as it is being overtaken by inflation on a yearly basis).


Appreciate we are in quite a fortunate position to have some equity in our home and are able to service mortgage etc comfortably. Is there anything we should be doing differently?

Think about what you and your wife want from life and when you want to do it. When you have an idea, get the right structures in place so you can achieve them. Maxing out on your pension may put you in a great place in 25 years time but will diverting cash into something inaccessible stop you from doing something in 5 years?

- Do you have enough life cover in place?
- Does you employer provide income protection? (You can see the effect of being reduced to one income at the moment. Add in an illness that has stopped you from working for months).
- Have you looked at overpaying your mortgage?
- Automate your savings. It will build up over time.
- Use capital markets. Divert the children's allowance into a regular savings plan with an insurance company. It will be invested for almost 20 years so ups and downs in returns can be tolerated.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

In addition to what Steven has said, I'd be looking to switch mortgage provider to get a better rate.

Thanks for the quick reply.

SBarrett said:

Think about what you and your wife want from life and when you want to do it. When you have an idea, get the right structures in place so you can achieve them. Maxing out on your pension may put you in a great place in 25 years time but will diverting cash into something inaccessible stop you from doing something in 5 years? Our main priority is looking after our family, we have done plenty of travelling when we were younger, we go on holiday each year and enjoy meals out etc though don't lead an extravagant lifestyle - neither of us are big drinkers and we have two fairly modern cars so no immediate big spend items in the immediate future - or at least nothing that the rainy day fund shouldnt be able to cover.

- Do you have enough life cover in place? Yes we have life cover in place, though we do need to make a will now that the little one is here.
- Does you employer provide income protection? (You can see the effect of being reduced to one income at the moment. Add in an illness that has stopped you from working for months). My wife has income protection through work, i don't, again, something we should probably look at, given mine is the higher income).
- Have you looked at overpaying your mortgage?We got our mortgage 3 and a half years ago (30 year) and have made a few lump sum payments and term reductions in order to reduce the level of interest paid over the lifetime of the loan. Currently fixed for the next 9 months, would like to continue with this approach in the hope that it is cleared by the time I am 50.
- Automate your savings. It will build up over time. Will re-start this once we go back to 2 incomes and take the childcare costs into account. I think we should be able to do approx 500EUR per month.
- Use capital markets. Divert the children's allowance into a regular savings plan with an insurance company. It will be invested for almost 20 years so ups and downs in returns can be tolerated. Can you give some more info on this, would this be through somebody like Zurich etc?


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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HollowKnight said:

In addition to what Steven has said, I'd be looking to switch mortgage provider to get a better rate.

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Absolutely - had looked to change from EBS to BOI to get a better rate and the cashback offer, probably need to wait until May and the 2 incomes are coming in for this to go through though?

Runner1 said:

We put our Child benefit directly into a savings account for our child and I top this up with 100EUR standing order each month, with a view to having a nice pot of cash for when they are older for college/car/house deposit etc. I view this as our childs money and am therefore reluctant to subject this to any high levels of risk, but should I be looking at something different than a standard savings account to drive a better return (seen as it is being overtaken by inflation on a yearly basis).

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I keep on hearing (here and elsewhere) of parents who dutifully set aside their child benefit as they categorise it as if its their child's money and should be faithfully kept intact for X reason / certain spending for said child in later life.

I would have thought child benefit should best be used as a contributory means to help put the entire household on the best possible financial footing as early and as efficiently as possible.

I agree. Say for example the allowance contributed to childcare costs, which allowed one parent to continue working to take advantage of ER pension contributions and a subsidised healthcare plan. Or was used to overpay mortgage, to get a lower LTV and reduce overall interest expense. Had I known I had a lump sum saved up for me, I might not have bothered taking on a part time job in college, or saved up to spend a year travelling.

Understand the point around putting the family on the best financial footing, but I wouldn't agree with using it to overpay mortgage etc - what if your child wants to go do a college course in a different part of the country for example? I would prefer to have the lump sum to pay for accommodation costs etc rather than be in a position where the mortgage is lower and then need to borrow to fund this cost at a much higher interest rate. I wouldn't be telling them that the lump sum is there and handing it over until they were ready to use it responsibly, the idea is more to have the cash there for their benefit.

Might be just my mindset, but I took out the mortgage, I intend to pay it off myself, rather than have any reliance on kids paying towards it, they will have enough of that with their own mortgage!

Runner1 said:

Understand the point around putting the family on the best financial footing, but I wouldn't agree with using it to overpay mortgage etc - what if your child wants to go do a college course in a different part of the country for example? I would prefer to have the lump sum to pay for accommodation costs etc rather than be in a position where the mortgage is lower and then need to borrow to fund this cost at a much higher interest rate. I wouldn't be telling them that the lump sum is there and handing it over until they were ready to use it responsibly, the idea is more to have the cash there for their benefit.

Might be just my mindset, but I took out the mortgage, I intend to pay it off myself, rather than have any reliance on kids paying towards it, they will have enough of that with their own mortgage!

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I think the idea is you overpay as aggressively as possible in the child's early years. Then, with a few years to go before college, and when mortgage repayments are nice and manageable, you stop overpayments and aggressively save cash for that college fund.

I wouldn't look at Child Benefit as the child's money. It's a small bit of assistance you get back after many years paying PRSI.