Early 40s, young family. inheritance will pay off mortgage, then will have annual savings (50k) and unsure how/where to invest

C

crp1983

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Age:
42
Spouse’s/Partner's age:
44

Annual gross income from employment or profession:
70000
Annual gross income spouse:
130000

Type of employment:
Private sector pharma jobs

Expenditure pattern:
annual expenses are approx 75k for the family.

25k on mortgage
10k on childcare
20k on all “necessary” spending like bills/insurances/taxes/utilities/supermarket/clothes/house maintenance
20k on all “fun” spending like birthday/christmas/kids extracurricular activities/eating out/holiday/streaming etc

After pension contributions and the above expenses we save approx 20k per year

Rough estimate of value of home
750,000
Mortgage on home
405,000 balance remaining
Mortgage provider:
BOI
Type of mortgage: Tracker, interest only, fixed rate
25 year mortgage - 5 year Fixed rate with 2.5 years remaining.
Interest rate
3.9%

Other borrowings – car loans/personal loans etc
None

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

Savings and investments:
25k emergency fund in savings account in An Post
10k savings in AIB online saver
Other saving each year we overpay lump sum off the mortgage of about 20k.


Do you have a pension scheme?
Work place schemes, both contribute max for age (25% up to 115k euro) both with a 6% employer match.
Only started 4 years ago when we moved to Ireland - pension accounts have approx 75k each now.
Current new monthly contributions at max.

No other pensions from previous jobs but previously worked in uk and maintain contributions to uk state pension. No state pensions from any other countries.

Do you own any investment or other property?
No.

Ages of children:
3 and 6

Life insurance:
Yes through work and an additional Zurich policy took out when we got the mortgage.

What specific question do you have or what issues are of concern to you?
I am about to receive an unexpected inheritance that is essentially equivalent to the remaining mortgage balance (after inheritance tax). We will pay the mortgage off more as a security/emotional decision.

Previously most of our saving went to paying down the mortgage. Big question after the mortgage payment is gone is that, (after maxing pension contributions) we will have savings of something like 50k per year to invest. Looking for advice on how and where to invest this 50k/year.

We are not super high risk takers(can’t see myself investing heavily in crypto for example) and don’t have any investing experience. Only goal is to invest this money wisely to grow it, to help us retire earlier and set the kids up for a successful future.

Leaning towards seeing a financial advisor as so unsure of the investment options available. Afraid really to make the wrong decision - could make a mistake and lose the money , but also afraid to invest too conservative and lose out on making money from these investments.
Also afraid to make big decisions when still quite shook up about the deaths leading to the inheritance. All seems a bit big to handle right now.

Thanks for your advice.
 
It must be very hard to deal with the loss of family when you probably expected to have family members around for many years to come.

An independent financial advisor is the way to go to steer you through investing the money in global equities. There are several who post on this forum regularly.

You will have no mortgage.
You are maxing your pensions.
You have plenty of income for your living expenses.
You can grow your wealth through investing.

Do you have any other short or medium term financial goals that you need to save towards? Investing in equities and your pension would be long term goals.

Do you and your spouse want to continue to work full time until you retire at 55?, 60? There may be opportunities to take career breaks, travel with the kids, do term time work, so you might consider saving for breaks like that.

Any hobbies you want to take up? With more disposable income you may want to give yourself more spending money, for pastimes, charities, etc.
 
Very sorry for your loss @crp1983.

I think clearing the mortgage is a good choice fwiw.

Re 50k a year, I personally would consider bare trusts for the kids so you can start transferring 6k pa over to each of them tax-free, with plenty of time on their side for that to build into house deposits, etc.

After that, same questions as Clamball above. The answer to your question is probably equities but best to have a clearer view of your goals for that level of ongoing investment.
 
I’m sorry to hear of your loss and wish you and your family well on all fronts.

You are in good financial shape and are doing the basics right.

crp1983 said:
Do you have a pension scheme?
Work place schemes, both contribute max for age (25% up to 115k euro) both with a 6% employer match.
Click to expand...
What exactly is your pension invested in? For example, some people will be in a 'global equity fund' or 'prisma 5' fund or something with branding terminology like that. If you don't know, then find out. It will play a big role in determining what you should do with your additional annual savings.

crp1983 said:
We... don’t have any investing experience.
Click to expand...
I get what you mean, but you actually do have experience. You have approximately €150,000 in your pensions. It is very likely that this is an investment fund made up of some mix of equities and bonds. At some point, you probably ticked a box to decide on this fund. You might think I'm being pedantic, but I am just pointing out that you aren't starting from scratch. You're already on your way.

crp1983 said:
Leaning towards seeing a financial advisor as so unsure of the investment options available. Afraid really to make the wrong decision - could make a mistake and lose the money , but also afraid to invest too conservative and lose out on making money from these investments.
Click to expand...
There is a lot of well-founded cynicism about financial advisors in Ireland on this website and elsewhere, as they typically make their money on commission and are incentivised to sell investment products rather than offer grounded holistic advice. If you approach a financial advisor, go in with your eyes open and consider the possibility that they are encouraging you to take an inappropriate and expensive product. Do not be afraid to question what you are being told. Strongly consider finding a fee-only advisor who will charge you for advice and be less likely to press you into buying a product that is unsuitable and/or too expensive.

I personally think it is sensible for you to pay off the mortgage and to keep up your pension contributions to get the maximum tax relief possible. But I would look very hard at what my pension fund is invested in and what the charges are. In your shoes, I would change my pension investment if necessary to a low cost 100% global equity index passive fund. Then I would put my additional savings every year into something less risky than my pension fund, using this non-pension investment decision as my primary way of influencing my overall investment risk. In your shoes, I would look for a cheap investment fund that had a broad mix of 60-80% global equities and 20-40% bonds.

A very crude rule-of-thumb is to have the equity share of all of your investment assets (pension+ non pension) in (100 - your age)% equities. So, in your case, 100-43=57% equities and 43% bonds. But getting an optimal figure is a mix of art and science. A good financial advisor will run some modelling analysis and take your circumstances into account better than I can, but I would be surprised if they landed on an investment mix that differs substantially from what I would pick and state above. As you age and your pension assets rise in value, you'll want to lower the risk of your non-pension assets further. Going with a financial advisor might suit you if it takes the initial decision and ongoing monitoring out of your hands, but buyer beware on (1) advisor conflicts of interest and (2) the long term compounding impact of advice fees.
 
Just a further thought/question - you both moved to Ireland 4 years ago, aged 38 and 40. Do you intend to retire in Ireland? Have you part-qualified for other state pension income? In Ireland, joining the workforce at 38yo and working to state pension age of 66 would qualify you for 28/40th’s of the Contributory Old Age Pension (COAP). It’s not huge money but covers an element of fixed income, therefore I find the standard advice of investing 20-40% in bonds to be unnecessarily conservative. My own view of a conservative approach would be 100% equities to 5 years before retirement, transition to 20% bonds over the final five years, then slowly transition back to 100% equities over the first 10 years of retirement. Increase the bond mix slightly (e.g 25-30%) if you don’t qualify for full COAP x2 (edit - or equivalent, e.g. Social Security or UK pension).
 
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crp1983 said:
We are not super high risk takers(can’t see myself investing heavily in crypto for example) and don’t have any investing experience. Only goal is to invest this money wisely to grow it, to help us retire earlier and set the kids up for a successful future.

Leaning towards seeing a financial advisor as so unsure of the investment options available. Afraid really to make the wrong decision - could make a mistake and lose the money , but also afraid to invest too conservative and lose out on making money from these investments.
Click to expand...
Apologies for linking to it yet again, but maybe my own experience might help inform you here on this point?

What to do with a million euros?

Personal details Your age: 49 Your spouse's age: 54 Number and age of children: 2 aged 9 and 14 Income and expenditure Annual gross income from employment or profession: €30,000 (state job) Annual gross income of spouse/partner: €60000 (state job) Pension: have maxed AVC’s (should I also...
www.askaboutmoney.com
 
Thanks for the advice everyone. We really appreciate it.

I found it extremely useful to switch how I’m thinking about this - less making the right decision with the money and more finding the right way the money can work for our life and future. Sounds simple but thinking of it that way is quite freeing really! The inheritance gives us options and that’s a much happier feeling and easier option to think about than trying to make the absolute best financial decisions.

We will take some time and look at what we want - maybe early retirement or reduced hours while the kids are in school.

For all the specific advice thanks for that we will look into all of it:
We will look at a financial advisor and take care to ensure the recommendations/fees/risk profiles match largely with what’s been suggested here. We will educate ourselves on equities/bonds etc so we can evaluate somewhat the advice we receive.
We will look at bare trusts for the kids as an efficient way to save for them.
We will make sure we keep contributing voluntary to the state pension to get guaranteed retirement income later.

Thanks again everyone, really appreciated
 
I agree with the consensus -

1. Use the inheritance to pay off your mortgage;

2. Keep maxing your pension contributions and maintain 100% allocation to global equities within your pension funds; and

3. Establish bare trusts for your kids and contribute €6k per annum (small gift exemption X2) for each kid; and

4. Make sure you have appropriate insurances in place (life, income protection, health, house, etc).

If you find that you have any after-tax savings left after that, I would be inclined to simply invest in decent fixed-term deposits.

And maybe increase your “fun money” budget - €20k does not look particularly extravagant to me.
 
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