45 year old, not working. How to generate better return on €275K

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RiskAverseGuy

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Age: 45
Spouse’s/Partner's age: n/a

Annual gross income from employment or profession: 0 currently
Annual gross income of spouse: n/a

Monthly take-home pay: 0 currently

Type of employment: e.g. Civil Servant, self-employed.: Private Sector but not working currently

In general are you:
(a) spending more than you earn, or
(b) saving? (a) at the moment due to no income

Rough estimate of value of home €225000
Amount outstanding on your mortgage: €119000 over 20 remaining years
What interest rate are you paying?0.75% tracker rate

Other borrowings – car loans/personal loans etc: None

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

Savings and investments: (€275,000 spread across 3 retail bank deposit accounts)

Do you have a pension scheme? A 12 year DB pension from previous job currently estimated to be worth €135K when I reach 65 in 2040

Do you own any investment or other property? No

Ages of children: None and no plans

Life insurance: just the insurance policy against my mortgage


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

I recently left a job just before COVID due to stress and have been taking time out after 20+ years working in funds industry to reevaluate career options and next steps. I'm happy to not work for remainder of 2020 but I'm keen to do something with my savings to generate a better return as they are doing nothing in deposit accounts. I'm reluctant to invest in property as I'm not cut out for being a landlord due to horror stories I hear and all the regulations. I had company shares for years but sold them about 5 years ago when their share price reached an all time high. As you can see, I've been a good saver to accumulate €275k through a combination of good salary, no family expenses and a very cheap mortgage. I'm quite risk averse per my user name so I would be keen to hear low risk investment options that could give me some decent return. I've been tempted to pay off my mortgage but feel it's so cheap (ECB rate of zero +0.75) that I'd be better doing something else with my money. Any and all suggestions welcome. Thanks!
 
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The very simple answer here, especially when you are risk averse, is that the best return for your savings is to clear your mortgage. You are paying interest on mortgage that you will simply get nowhere near with deposit accounts. This means you are at a net loss every month/year. This would still leave you with over 150k on deposit which is more than enough, even for a single guy who is currently out of work.
 
Thanks for your response. The mortgage interest I'm paying currently is miniscule thanks to a very good tracker rate of 0.75%. As I'll never get a rate that cheap again, is there anything other than paying off the mortgage that would generate a better but reasonably safe return? If ECB rates were to go up again, I'd certainly consider it but they've been at zero for years now and with the EU economy struggling, I can't foresee them rising anytime soon.
 
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Pay off mortgage on your home, than rent it out by the room, buy a campervan, you buy a nice one for 80K that you would get 20 years out of. Head to south of France for winter stay in ireland for summer.
 
If you don't want to pay off your mortgage and I can understand why with how cheap it is, why don't you consider state savings? They are tax free and have better rates than most other sources at the moment (https://www.statesavings.ie/our-products/installment-savings or https://www.statesavings.ie/our-products/10-year-national-solidarity-bond). You can also usually withdraw without a penalty. The rates are higher than your mortgage interest rate.

Also you mention a 12 year DB plan worth €135k, not sure on the detail here i.e. is that the estimated equivalent total value or the annual payout. However, if it's the estimated total value it might be worth looking as making some AVC contributions to a PRSA for last year and this year.
 
You are asking what to do with your 275k but for more context maybe it would be useful to share the following
  • How much did you spend when you were working
  • How much are you spending now
  • What is the jobs market like in your sector and have you any thoughts on returning to work
  • Do you have any skills that would allow you to reduce your spending (e.g.. house maintenance and repair skills) or bring in a side income
  • Are you familiar with FIRE (Financial Independence, Retire Early) and are you thinking about it
I have some things in common with you, single male, about the same age, risk aversion, significant savings, don't want to be a landlord. I asked in the AAM investment forum for advice on a passive income strategy with 300k but didn't get any replies. The fact that I am asking for advice rather than giving it probably means that I am of little use to you!
 
New2This said:
If you don't want to pay off your mortgage and I can understand why with how cheap it is, why don't you consider state savings? They are tax free and have better rates than most other sources at the moment (https://www.statesavings.ie/our-products/installment-savings or https://www.statesavings.ie/our-products/10-year-national-solidarity-bond). You can also usually withdraw without a penalty. The rates are higher than your mortgage interest rate.

Also you mention a 12 year DB plan worth €135k, not sure on the detail here i.e. is that the estimated equivalent total value or the annual payout. However, if it's the estimated total value it might be worth looking as making some AVC contributions to a PRSA for last year and this year.
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Thanks for advice. Maybe State Savings is a runner. I see €120k is max investment per individual so I wouldn't be putting all my eggs in one basket. Re pension question, it is estimated equivalent total value.
 
The Ghoul said:
You are asking what to do with your 275k but for more context maybe it would be useful to share the following
  • How much did you spend when you were working
  • How much are you spending now
  • What is the jobs market like in your sector and have you any thoughts on returning to work
  • Do you have any skills that would allow you to reduce your spending (e.g.. house maintenance and repair skills) or bring in a side income
  • Are you familiar with FIRE (Financial Independence, Retire Early) and are you thinking about it
I have some things in common with you, single male, about the same age, risk aversion, significant savings, don't want to be a landlord. I asked in the AAM investment forum for advice on a passive income strategy with 300k but didn't get any replies. The fact that I am asking for advice rather than giving it probably means that I am of little use to you!
Click to expand...
Appreciate your input. My spending since COVID is artificially low. I was probably spending 3k a month when working and no COVID restrictions (nights out every week, €25 taxis home after, annual rail commuting, daily morning barista coffees and €10 sandwiches at work, eating out 2/3 nights a week, city breaks, sun holidays, clothes shopping etc). All that has stopped so I'm possibly averaging €1500 a month at the moment since March - that includes monthly mortgage of €530 and all utility/grocery bills). I'm not an online or gadget purchaser. Netflix and Amazon Prime are my leisure expenses these days!

I am looking to either go back to college or start a new career. My other dilemma right now is deciding what path to take there and what to actually do but that's probably for a different forum! I'm not aware of any sideline skills that could translate into money earning...I wouldn't be a handyman type.

I'll read up on FIRE. Thanks!
 
Clear your mortgage and put €120K into State Savings and this still leaves you €35K as a safety blanket/working capital. Even with your €3K a month pre-Covid spending pattern, that is three years of a buffer. Why are you concerned about holding on to the tracker mortgage? By clearing your mortgage, you will improve your cashflow by €500 a month, lengthening your buffer time even more and eradicating your sole fixed monthly outgoing.
 
RiskAverseGuy said:
Thanks for advice. Maybe State Savings is a runner. I see €120k is max investment per individual so I wouldn't be putting all my eggs in one basket. Re pension question, it is estimated equivalent total value.
Click to expand...
In that case I would definitely look at setting up a PSRA (https://www.revenue.ie/en/employing...personal-retirement-savings-account-prsa.aspx) with the lowest fees possible. It will involve a little risk as it will be invested in the equities market but with your overall savings etc it should still fit with your overall risk profile.

You can contribute 25% of last years gross salary up to a max of 28,750 (tax relief is only available on your salary up to 115,000 up to a max % based on your https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx). This needs to be completed and reported before the 31st of October as a catch up contribution and and you will get the tax back on so it won't cost you the full amount decide to contribute. Also given your age you will be able to access this money in 5 years time if you want/need to.

Given the level of funds and how a DB pension entitlement might impact any plans you make for a DC pension, it would probably make sense for you to pay for at least 1 consultation with an independent financial adviser. Make sure they are actually independent and don't commit to purchasing anything on the day. A good adviser with your best interests at heart won't pressure you to do so.
 
New2This said:
In that case I would definitely look at setting up a PSRA (https://www.revenue.ie/en/employing...personal-retirement-savings-account-prsa.aspx) with the lowest fees possible. It will involve a little risk as it will be invested in the equities market but with your overall savings etc it should still fit with your overall risk profile.

You can contribute 25% of last years gross salary up to a max of 28,750 (tax relief is only available on your salary up to 115,000 up to a max % based on your https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx). This needs to be completed and reported before the 31st of October as a catch up contribution and and you will get the tax back on so it won't cost you the full amount decide to contribute. Also given your age you will be able to access this money in 5 years time if you want/need to.

Given the level of funds and how a DB pension entitlement might impact any plans you make for a DC pension, it would probably make sense for you to pay for at least 1 consultation with an independent financial adviser. Make sure they are actually independent and don't commit to purchasing anything on the day. A good adviser with your best interests at heart won't pressure you to do so.
Click to expand...
Thanks. Some great suggestions there. Particularly, the tax relief for making a PRSA contribution from last year's gross earnings.
 
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