Hold savings for future potential needs?

[LTV123]

Age: 45
Spouse’s/Partner's age: 46

Annual gross income from employment or profession: €125,000 plus discretionary bonus c €25/30,000
Annual gross income of spouse:€98,000 plus discretionary bonus c €20,000

Monthly take-home pay €8,200 after AVC

Type of employment: e.g. Civil Servant, self-employed
Both employed private sector

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving

Rough estimate of value of home €800,000
Amount outstanding on your mortgage: €112,000 after many years of overpaying where we could
What interest rate are you paying? 2.75%

Other borrowings – car loans/personal loans etc
None but need to trade up cars soon, have never had car finance

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

Savings and investments: c €125,000

Do you have a pension scheme? Yes. Both have DB with small pension of c€13k per annum accrued at retirement (closed to future accrual). Both c €230k in DC scheme. Both maxing AVCs since DB closed to future accrual. Both employers contribute c 11% to DC fund.

Do you own any investment or other property? No

Ages of children: 3 kids under 9.

Life insurance: Death in service benefit plus life assurance policy each.


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

We realise we are very lucky to be where we are financially. However we have busy stressful jobs so not sure we can keep going at this pace until we are 65, so earnings can’t be assumed to continue at this level. We have a good bit of savings that is earning no interest while at same time paying interest on the mortgage. We have the mortgage to a comfortable level we think so are focusing on maxing AVCs each year now, but are considering more payments against mortgage. We wish we had made less mortgage overpayments & more AVCs in our 30s while the tax benefits were there.

Two questions :

(1) If we are thinking of needing capital in say the next 5 years are we better holding onto our savings for that or just reduce debt now & look for finance when we are at that stage? We are looking at potentially developing rear garden subject to pp. I worry we wouldn’t get the lower mortgage rate if the loan was not for our PPR.

(2) We are saving the children’s allowance for college years & I’d like to know more about savings products to try to make that work better for us. But not a product that is the child’s when they turn 18.

Thank you !

 

[Brendan Burgess]

1) Don't segregate your capital the €125k you have in a current account is the same euros as the €x you have in a savings account earmarked for your children. It makes no sense to segregate them. And it costs you money.

Think of it like this.
Let's say you have €10k in the children's account.
If you set that off against your mortgage, your mortgage will be €13,100 lower after 10 years.
You should be able to do that mental accounting yourself.
No need to pay the bank €3,100 to do it for you.

2)

are focusing on maxing AVCs each year now, but are considering more payments against mortgage.

Correct to max your AVCs now as a first priority


3) Clear your mortgage fully with any balance

You will probably be clearing most of it over the next 5 years or so anyway. So you are just advancing those repayments.
With your income, you will be saving more money over the next 5 years and might have enough for developing the rear garden.
If you have to borrow then, so be it. You will probably pay off any borrowings fairly quickly.

If you were planning on doing it next year, it would be different. But as you are only thinking about doing it in 5 years, it's not worth paying 2.75% a year in case you might do it in 5 years.

As your kids get older, you might well put a different value on your garden and decide not to develop it.

Brendan