Early 40’s with 4 kids; invest or pay off mortgage?

D

DaddyLongLegs

New Member
Messages
6
Personal details
Age: 43
Spouse's age: 42

4 children
Eldest is 10, Youngest is 5


Income and expenditure
Annual gross income:
€120,000
Annual gross income of spouse: €95,000
Monthly take-home pay: €9,000


Type of employment:
Me: Private sector employee
Spouse: Public servant


Expenditure:
€7000 pm
In general with childcare, mortgage and transport costs we are spending heavily each month but there is some leftover cash which is going into savings accounts for a rainy day fund. However, I often think we should be using it more wisely, either paying off mortgage or investing for the next 10 years for a college fund for the children.


Summary of Assets and Liabilities
Mortgage:
Lender: BOI
Rates (both 3 year fixed):
€230,000 @ 3.9%
€160,000 @ 2.7%
Monthly repayment: €2,135
Family home value: €950,000


Other borrowings:
None
Credit card balance is paid off each month


Savings:
Bank balance: €60,000
Monthly Savings: €1,200 pm
Credit Union: €560 pm (Child benefit)


Pension:
I have company pension scheme matching up to 5%. I pay a 5% AVC on top of that.
Current value: €160,000
Spouse has public services pension


What specific question do you have or what issues are of concern to you?
Really looking for advice on what to do with the extra income we are bringing in. At some point in the near future I may have to purchase a car as the kids are outgrowing the backup one, but with savings I should be able to avoid a requiring a loan to do so. Other than that I dont really have any plans for the current savings we have other than to have it as a rainy day fund.

I have been thinking of putting the child benefit payments into some investment fund but really have no clue where to start. Currently its just going to a credit union account for each child at €140 pm.

With some of the other income I could look to top up my pension or potentially pay off the mortgage. Maybe I would be better off investing it aswell?

Any ideas or recommendations would be greatly appreciated. I am considering booking an appointment with a Financial consultant but thought I’d see what this thread has to offer first.

Cheers
 
After purchasing the car and keeping some emergency fund, how much will be left of the 60k?
After that, if you don't have short-term/medium plans, I would consider increasing your pension contributions as 5 per cent is low and you accumulate monthly savings.
If your children are unlikely to live at home, while your monthly income should be able to absorb some of the expenses as you currently have an excess of 1.7k while paying childcare, I would calculate what it would look like as you have 4 children and it would be a substantial expense. You could also possibly have 4 studying at the same time. Currently I think you would have little change out of 12 k per year per student.

I would also try to think about what you expect from retirement and when you see it happening. I understand that you are in your early 40s. However, early retirement needs to be planned. If you decide to work until 66, pension is 23 years away. If you see yourself stopping at 60, you have 6 years less to contribute and you need to finance the additional years.
 
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I think you should materially increase your pension contributions.

At your age, you could get tax relief on pension contributions up to €28,750 per annum on top of any employer contributions.

Anything left over at the end of the month? Throw it at the mortgage balance.

I don’t think you need to establish a “college fund”. You can meet those expenses from your income when the time comes.
 
You are in a great position to start with, good earning potential, little debt.

While your monthly outgoings are high I doubt if you will see them reduce by much as your kids go into second and third level. As @Premos says you need to have short, medium and long term financial goals.

Short term - car replacement etc
Medium term - the college years
Long term - retirement

You have your credit union and your bank savings for your car.
With €390K left on mortgage, could you have that paid off in 8 years by the time the oldest starts college? This would free up €2-3K, which would go some way to funding the college years, but it really depends on if the kids are living away for college. Otherwise consider investing to grow money for these years. I don’t know if you are thinking of private secondary which really boosts their college opportunities.
Then long term AVC’s for the the pension, 5 % is relatively small. The youngest should just be through college by the time you hit 66, so you long and medium terms plans overlap a fair bit.

You do have a great opportunity though to spend on family time until then. Are the kids keen on sports, music, holidays. Building all those memories may be worth more than anything.
 
Will your kids likely live at home for third level?
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Unlikely, as we are fairly remote and not really close to any of the major universities.

How much is in the CU account?
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€8500

After purchasing the car and keeping some emergency fund, how much will be left of the 60k?
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I need a 7 seater so wont come cheap. I'm. aiming to keep below 30k but would extend to €35k max, leaving about €25k balance at worst.

Currently I think you would have little change out of 12 k per year per student.
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Ouch! Our childcare is coming in at a cost of €24k a year. I havent really accounted for it becoming even more expensive!!

I would consider increasing your pension contributions as 5 per cent is low and you accumulate monthly savings.
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I think you should materially increase your pension contributions.
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Sounds like this is a step worth taking. Between salary, employer and AVC contributions I'm currently putting in 15%. I'll do the sums and see realistically how much more I can put in.
The other thing to mention here is that we have little visibility on what level of income my wife will be entitled to on her pension. She has been paying into it for 20 years already but she doesn't have any access or ability to view details like I do. She has reached out to some people in work but getting a clear response is proving difficult.
 
DaddyLongLegs said:
Between salary, employer and AVC contributions I'm currently putting in 15%.
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Most people only think about the % in terms of the % of their salary, the employer contribution is not counted.

With the potential for the kids to go away for college you probably need to start thinking about them self funding some of the costs for them to go to college, so part time work, service job skills etc.
 
Ah, so you are contributing 10% of your salary to your pension (with your employer contributing an additional 5%).

If you doubled your contributions to 20% of salary it would only reduce your net take home pay by around €600 per month.

Go for it!

You can always reduce contributions at a later stage, if necessary, when the kids go away to college.
 
Personally I would keep the 25k accessible. But that's me. I like to be able to face additional life expenses without planning too much. Before October 31st, you could put a lump sum in your pension for 2024.
 
DaddyLongLegs said:
The other thing to mention here is that we have little visibility on what level of income my wife will be entitled to on her pension.
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You could estimate her PS pension benefits?

With 20 years service, I presume she joined a PS pension scheme before 2013, so she is not a member of the SPSPS?





Estimated benefits - this is a rough estimate

Lump-sum = (years of pensionable service) * (3/80) * final salary

Pension =(years of pensionable service) * (1/80) * final salary
 
You are in a good financial position.

Your wife will have a good pension on her retirement.

You will have a good pension on your retirement.

But the best long-term investment is into your pension fund as you have a comfortable mortgage.

So contribute to the max to your pension fund. Pay anything else off your mortgage. And then when the kids are even more expensive, your mortgage payments will be lower and you can stop paying into the pension fund any more than your employer matches.
 
DaddyLongLegs said:
Credit Union: €560 pm (Child benefit)
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€8,500 in a Credit Union earning you 0% while paying 3.9% on a mortgage is madness.

There is no need to segregate the fund by source i.e. Child Benefit. If you get some psychological comfort from segregating it, then pay it off your mortgage and keep an Excel spreadsheet which you top up by 3.9% a year.
 
Ok thanks everyone.

It seems like the consensus is to maximise pension contributions and put any surplus towards paying off mortgage. I just checked BOI terms there and it seems max I can overpay is 10% so that would be around €210 a month so its possible and should still leave some left overs for savings.

€8,500 in a Credit Union earning you 0% while paying 3.9% on a mortgage is madness.
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I agree and was actually thinking of putting this into some form of investment portfolio and adding the €560 child benefit payment on a monthly basis. It will be 8 years before our first child goes to 3rd level so was working on the basis that this would be untouched for that period and could potentially net a decent yield. However, nobody here is recommending this option so it doesnt look like this would be the wisest choice.
 
Do you have any income, illness, life cover?

As others have said, short, medium and long term projections around likely expenditure and income will assist in your analysis especially if you will meet with an adviser. Education costs if they materialise will be the serious cost.

How long is left on the mortgage? Have I missed that?
 
Do you have any income, illness, life cover?
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No serious illness cover but we do have income protection and life cover.

How long is left on the mortgage?
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Sorry, looks like forgot to include this. It's 19 years for the smaller piece and 25 for the larger one
 
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