35 year olds with decent incomes, how to dismount from the hamster wheel?

A

Abalone

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Personal details

Your age: 35
Your spouse's age: 35

Number and age of children: Two kids, 3yo and a newborn


Income and expenditure
Annual gross income from employment or profession: 100k
Annual gross income of spouse/partner: 82,500

Monthly take-home pay: €7k combined

Type of employment - e.g. Employee or self-employed: Both PAYE workers
Employer type: e.g. public servant, private company: Both multinationals

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving about €2k per month after tax (outside of company shares and pensions)

Summary of Assets and Liabilities
Family home value: €485k
Mortgage on family home: €401k (€256k mortgage and €150k home improvement loan)
Net equity: €84k

Cash: €93k
Defined Contribution pension fund:
€214k in an equity fund in an occupational pension
Spouse has €130k in an equity fund in an occupational pension

Company shares :
€42k in shares in my employer between bonus share purchase scheme (no PAYE on bonus if left in the scheme for 3 years) and unvested RSUs.

Spouse has €20k in employers share purchase scheme.

Family home mortgage information
Lender: PTSB
Interest rate: 2.2% for mortgage, 3.8% for home improvement loan
Type of interest rate: fixed for mortgage, variable for home improvement loan
If fixed, what is the term remaining of the fixed rate? Fixed until Sept 2026

Remaining term: 28 years
Monthly repayment: €1009 for mortgage, €700 for home improvement loan

Other borrowings – car loans/personal loans etc

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

Pension information

Value of pension fund: €334k combined, we both make maximum contributions.

Other information which might be relevant

Life insurance:
Both have 4x death in service, we have income protection on my salary.
Childcare for both kids is €1000 per month

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

Myself and my spouse have demanding jobs with decent incomes but overall I feel very fortunate to be in the financial position we're in. We've recently taken on additional debt in a home improvement loan for work on our home and have two children in childcare. There's a lot of money going in and out but I feel we've gotten a good start on our pensions and I aspire to not sticking with the rat race until I'm 65-70.

My financial goals are to be financially independent (debt free and pensions sufficiently funded to be able to retire on our own terms) and to be able to leave something behind for our kids.

I'm uncertain whether there is value in getting professional advice to help achieve the above goals, based on commentary about a lot of financial advisors being commission focused?

Or is it as simple as keeping going with the pensions and reduce the exposure to individual company shares by selling them as they vest and using them to pay down our mortgage and home improvement loan as rapidly as possible (could be an additional €15-20k per year)? Our current plan is to use our available cash to make a dent in the home improvement loan.

I appreciate it if you made it this far!
 
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You’re in very decent shape overall for your age, well done!

Two questions and one piece of advice to consider:

1) When you say maxing out pension contributions, do you mean max to get employer contributions, or maxing out your AVC’s?
2) Are either of employer’s share prices of high-growth potential? I personally think this is relevant given your strong financial position elsewhere, you might be okay to buck the trend here and let a high-risk/high-reward position run a bit. On the flip side, if they’re a stable price with little more upside than the market then you’re right to cash out and either buy the market via AVC’s or pay down your HIL/mortgage.
3) Main advice I’d give is to get a very considerable chunk of that cash into your PTSB mortgage as a prepayment, so that it reduces your interest bill but is still available as a rainy day fund to meet repayments if necessary. I don’t know if this specifically can be offset against your home improvement loan portion or not. If so, I’d take down that portion as much as whilst still putting 12 months worth of repayments into the main mortgage if they do need to be specifically apportioned.
 
Thanks for the response, in answer to questions 1 and 2:

1. Regarding pension contributions, both spouse and I contribute 20%, this maximizes our employer contributions.

2. My employers shares have about 20% predicted growth as internal company target. Spouses employers shares have been more stable with no growth over the last 3 years.

Regarding 3, our mortgage was ported over to PTSB from Ulster bank so I must investigate the potential for prepayment as I hadn't considered this.
 
Abalone said:
My financial goals are to be financially independent (debt free and pensions sufficiently funded to be able to retire on our own terms) and to be able to leave something behind for our kids.
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You’re in excellent shape.

If you take a multi-decade horizon you’re probably better throwing what you can at the pension rather than overpaying on the mortgage.

You are a bit before the “bulge” of child-related spending though - that will peak when you have two in crèche.
 
Since you are maxing out your pension contributions I would use your €93K cash to pay down the home loan. You need a rainy day fund but I would max that out at €20 K perhaps.

Then if you continue to max your pension, pay off the mortgage, fund the childcare and spend on enjoying life with the kids you will have a great decade or two until they are through college.

Currently your take home is €7K, with €1.7K loans, €2K childcare (when the second starts crèche) €1K savings which leaves €2.3K per month for food, utilities, entertainment, bills, holidays, cars etc. You do say that childcare is €1000 for two kids, that seems to be way under the average currently (are you relying on grandparent support or maybe you are not living in a main city). That €2.3K per month seems a bit tight to me?

But the point I was going to make is once childcare and loan repayments fall away what will your typical monthly spend be? Throwing in the savings €3.3K per month? Will you we happy at that level of expenditure when you retire early? An alternative to consider is for one of you to become a stay at home parent. There are significant advantages to this but the household will have less income overall and only one spouse will be building a pension. But you are in a financial position to make that decision, many are not.
 
Abalone said:
Summary of Assets and Liabilities
Family home value: €485k
Mortgage on family home: €401k (€256k mortgage and €150k home improvement loan)
Net equity: €84k

Cash: €93k
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Abalone said:
Interest rate: 2.2% for mortgage, 3.8% for home improvement loan
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This is absolutely clear.

Pay the full €93k against the home improvement loan.

This leaves you with a mortgage of €308k against a home worth €401k which is 77% Loan to Value.

That is a high Loan to Value but as it's only 1.5 times your combined salary, it's probably comfortable enough.

ptsb treats overpayments as credits so if this rainy day comes, you can stop making repayments until you use up the €93k credit.

And as both of you are in well paid jobs, it is unlikely that you will have some major financial crisis.

And if you do, you can stop maxing your pension contributions and I am sure you would get easy access to credit if you needed it.

Your repayments will be lower, so you can build up a small rainy day fund - but absolute maximum should be €10,000

Brendan
 

This misses the point completely.

Today's share price reflects what is know about the company and what the expected growth is. Don't try to second guess the market.

You do not want all your eggs - employment and investment - in the one basket.

So it is always correct to sell off shares in your employer as soon as it is tax efficient to do so.

In your case with a large mortgage, it is particularly important to do so and pay the proceeds off your mortgage.
 
Abalone said:
Family home value: €485k
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Abalone said:
Your age: 35
Your spouse's age: 35

Number and age of children: Two kids, 3yo and a newborn
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Are you in your forever home?

Most well paid 35 year olds are not. Even if they love their current home, as their career and salary progresses, they often trade up.

I think that you should allow for this possibility and with that in mind, you should only contribute enough to the pension to max your employers' contributions and you should pay the balance off the mortgage to maximise your equity. This also maximises your flexibility e.g. if one of you wants to take a career break to spend more time with the kids, it will be much easier to do if you have cleared your mortgage.
 
Thanks for the feedback all, regarding childcare, we're lucky to be getting grandparent support hence the costs above are not fulltime childcare and our location/proximity to family means we're unlikely to move which was a factor in getting the home improvement loan.

It's good to get the steer that putting any extra available cash/shares against the mortgage is the right thing to do, that was my gut feeling.

Regarding reducing pension contributions to facilitate further mortgage overpayments, from a pure numbers perspective, I'm struggling with this as I would have thought that the combination of tax avoidance and tax free growth would accrue more than interest payment avoided?
 
Abalone said:
I would have thought that the combination of tax avoidance and tax free growth would accrue more than interest payment avoided?
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On a standalone basis, yes.

But over the longer term, if you have cleared your mortgage, you will be able to contribute more later. You are only 35 so you have plenty of time.

The additional flexibility of have a small mortgage or no mortgage is well worth it.
 
YOu're doing very well. I would def reduce the mortgage in your position.
One thing I will say is that as children get older the constant go between activities and matches at weekends is really tiring. I'd Keep some savings so you can take Parental Leave as needed.
 
Do you plan to have any more kids? (Appreciate #2 has just arrived). If no - then all of the advice above applies. If yes - then there is probably a single income scenario to be considered. In this scenario maxing cash flow (i.e. paying down mortgage) probably takes priority.
 
Not a conversation we've had at this point, interesting scenario to think about though, would have to weigh up the suitability of current home, even with work done, costs of trading up and ability to sustain things like pension contributions on a single income. Cash would be king in this scenario, I'd imagine.
 
You are at a very expensive time of life but you have strong incomes and controllable debt. You are savings €2k a month, redirect some of this into paying down your home improvement debt.

Don't worry about leaving something for your kids when you go, you will probably live your life close to two times over before it gets to that point. Think of the next 10-15 years. What position do you want to be in then? I know your kids are still young but is private education something to think about (and fund).

Keep some money in cash for emergencies, use the rest to pay down home loan debt. Overpay home loan with €1,000 and invest the other €1,000 in the stock market.

As shares vest, use them to pay down debt.

Get your structures right and you will be fine. Live within your means, don't take on too much debt and invest in the stock market.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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Mate I don't mean to come across as harsh but you're better off getting that house balance down before anything else
 
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His home loan has to be more than any usual net investment return, surely. take the 2k and pay down the loan.
 
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Childcare might be subsidised by grandparents now but in my experience older kids and teenagers aren’t interested in that and grandparents age and aren’t able for them. Summer holidays are long. Unpaid parental leave might be needed then. And summer activities are expensive for teenagers, assuming you don’t want to leave them home alone on the PlayStation all day. So make the most of the scope to repay loans now.

School fees might be in the future too… again allow for that by clearing as much debt as you can now.

If you have more kids grandparents might balk at taking on further responsibilities too.
 
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