Late 30's, young family seeking advice on how best to use savings and invest going forward

Personal details

Your age: 39
Your spouse's age: 39

Number and age of children: 4, 7, 10


Income and expenditure
Annual gross income : 74k (private sector)
Annual gross income of spouse/partner: 68k (public sector)

Monthly take-home pay: 8100

In general are you:
Saving 1150 pcm

Summary of Assets and Liabilities
Family home value: 540000
Mortgage on family home: 208000

Cash: 25,000 savings account earning practically no interest
20,000 saved for children in Credit union

Family home mortgage information
Lender: Avant
Interest rate: 1.95%
Type of interest rate: Fixed
Remaining term: 3 years

Other borrowings – car loans/personal loans etc
No other loans/borrowings
Do you pay off your full credit card balance each month? Yes

Pension information
Private pension for myself started this year only, ER contributing €650 per month, with a top up of €350 by me
Spouse civil service pension, post 2013 scheme. 7 years contributing so far. Started paying €100 per month to AVC this year also

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

We are good at saving but feel we are over saving and not being financially savvy. We can't decide whether to focus on paying off the mortgage faster and upping our pension contributions or look to invest in more high risk areas. We had a consultation with a financial planner who advised us to invest in medium risk funds, she suggested keeping emergency funds of approx. €20k and using the rest of our savings to kick off our investments with the aim of investing over €1,000 per month and to take a long term view on it. This just feels like a huge amount per month to be 'risking' when we could pay off our mortgage quicker if we used it.

I am risk averse so would prefer to increase pension contributions or pay a lump sum off the mortgage and look at less risky deposit accounts. Although our low interest rate on the mortgage probably means it doesn't make sense to pay it off.

We live near good transport links for colleges so hope this will minimise college costs.

Life policies are in place and both have death in service with our employers. No critical illness cover is in place.

Any advice is much appreciated.

Forget about the investments, your pensions are the real risk

Max out your contributions 20% this year and 25% for the next decade - lump sum for both of you from the credit union stuff to get it this year

If you've any left over money put it into the mortgage

Don't do anything else bar an emergency fund...

Seaniemed said:

Don't do anything else bar an emergency fund...

Click to expand...

Their spouse is a middle manager in the Civil Service which means a decent income and guaranteed job security. They're currently saving over €1k monthly anyway. A €25k emergency fund is pointless and they should dump that into the mortgage or pension.

CARVOLEGO said:

Spouse civil service pension, post 2013 scheme. 7 years contributing so far. Started paying €100 per month to AVC this year also

Click to expand...

That scheme is basically awful. They should be dropping as much into their AVCs as you if they want to have any hope of retiring before 66.

CARVOLEGO said:

I am risk averse so would prefer to increase pension contributions...

Click to expand...

No risk=no reward. That also applies to your pension investment.

CARVOLEGO said:

20,000 saved for children in Credit union

Click to expand...

Why? You live near colleges and will still be working when the youngest is in college so you don't really need a college fund. If it's to set the kids up later in life then the credit union is the wrong place to put it- it's bleeding to death via inflation.

Seaniemed said:

Forget about the investments, your pensions are the real risk

Click to expand...

Agreed.

CARVOLEGO said:

Family home value: 540000
Mortgage on family home: 208000

Click to expand...

CARVOLEGO said:

Annual gross income : 74k (private sector)
Annual gross income of spouse/partner: 68k (public sector)

Click to expand...

So your mortgage is comfortable 1.5 times your salary and less than 50% LTV.
So maxing your pension contributions is the right way to go.

You do not need an emergency fund given the factors set out by Big-N above. If you have some planned expenditure e.g. a car, then save for it.

CARVOLEGO said:

Cash: 25,000 savings account earning practically no interest
20,000 saved for children in Credit union

Click to expand...

The best way to save for your children is to be mortgage-free so pay any savings off your mortgage. You will be clearing most of your mortgage off over the next few years anyway, so you might as well do it now and save yourself interest immediately.

Thank you for the advice and guidance. Good to get alternative view points as the financial advisor was really pushing the investment option rather than ploughing more into our pensions. It just didn’t sit right with me, so we’ll take on board the advice to focus on our pensions for now.

We bought a new car last year with savings so no plans to upgrade any time soon. But if we are saving toward a goal, such as home repairs/ car would you have any recommendations for a deposit account rather than the credit union?

Are Zurich’s child saving plans worth considering for our child benefit?

CARVOLEGO said:

as the financial advisor was really pushing the investment option rather than ploughing more into our pensions.

Click to expand...

Probably because that’s where the commission is.

CARVOLEGO said:

Good to get alternative view points as the financial advisor was really pushing the investment option rather than ploughing more into our pensions

Click to expand...

What kind of "investment advisor"? Post after post here on Askaboutmoney refer to "financial advisors" but seldom do people clarify what kind.

I’d prefer not to name the business, but it’s a large company who offers mortgage advice, financial planning etc. Theres a few similar companies with a strong presence on instagram. They made a presentation in work and we availed of one of their consultations. Rather than increasing the pension contributions outlined above she recommended looking at long term investments in equity funds.

CARVOLEGO said:

a strong presence on instagram

Click to expand...

That's one of the last places, along with most other social media platforms, that I would look for a financial advisor.

CARVOLEGO said:

Rather than increasing the pension contributions outlined above she recommended looking at long term investments in equity funds.

Click to expand...

How did she justify this? In particular instead of maximising pension contributions. It doesn't seem like sound advice based on previous comments here.

CARVOLEGO said:

Are Zurich’s child saving plans worth considering for our child benefit?

Click to expand...

Maybe. But you need to be aware that it belongs to the child and they can access it at 18 but it's totally inaccessible until then, and it's not possible to change the fund choice after starting.

We have one for our child. It's partly to ensure college is fully funded if necessary and, if unnecessary for college, to have a big lump of a deposit to buy a home because I don't want them having to participate in the hunger games to be able to move out of home and get their independence.

There's also the question of whether to tell them the fund exists. An irresponsible 18 year old could easily make it quickly disappear with little to show for it. My initial instinct was to keep shtum until they at least finished college (assuming it wasn't required for college) but after reading discussion on the subject I now think it's better to educate them to be financially responsible enough to know about it and make their own choices at 18. And also trust them not to be an idiot, and at least as importantly display our trust to them openly.

Of course they may choose to spend it all travelling the world for a few years after turning 18, which is a different and arguably far more valuable kind of education to college. Whatever way you look at it it'll provide them with options not available to the average 18 year old.

In case it's of any relevance here in the context of third level education...

We didn’t find them on instagram. This particular company came recommended through work colleagues, I just meant their services are similar to some of the well known financial advisors on instagram. They all seem to use the same platform for obtaining your income / expenditure and other financial information and base their advice on this. At the work presentation they gave balanced advice regarding pensions and investments so I felt confident going with their service.

She felt my employers pension contribution combined with my own (total €1,000) per month was sufficient for now and felt looking to equity funds would yield a better outcome. It would also allow us access to the funds in the medium term if we needed it.

But I’ve read over so much of the money makeover advice over the last while and other information online which made me question her approach. I just felt the focus on equity funds when my pension provision was non existent went against the information I read.

I’ll take a look at Zurich’s plan, sounds like it might be an option for our child benefit.

CARVOLEGO said:

At the work presentation they gave balanced advice regarding pensions and investments so I felt confident going with their service.

Click to expand...

What do you mean by "balanced advice"? If you mean that they recommended investing your pension in low to medium risk/reward funds/assets then that is also likely to be bad advice.

CARVOLEGO said:

and felt looking to equity funds would yield a better outcome

Click to expand...

That doesn't make sense given the significant tax advantages of saving through a pension - tax relief on contributions, tax free growth while invested, tax free lump sum on drawdown.

CARVOLEGO said:

But I’ve read over so much of the money makeover advice over the last while and other information online which made me question her approach.

Click to expand...

Good!

CARVOLEGO said:

I’ll take a look at Zurich’s plan, sounds like it might be an option for our child benefit.

Click to expand...

Given the ages of your children you should also consider investing directly in equities given the lower charges and tax compared to unit linked funds.

For what it's worth, maybe my post here will be of some use:

ClubMan said:

That doesn't make sense given the significant tax advantages of saving through a pension - tax relief on contributions, tax free growth while invested, tax free lump sum on drawdown.

Click to expand...

Same thoughts here.

It only makes sense for the financial consultant if they are selling the equity fund investments to you (and benefiting from the fees) - but would make no sense whatsoever to a client who has not maxed out their pension tax relief amounts. I personally would steer clear of anyone providing that type of advice.

You can equally invest the pension into equity funds (and the AMC fees/TER associated with them might be lower due to the employer negotiating better rates at a company level)

It reads like there was no gain for the FA on the pension as it was set up through someone else (?) and increasing it was of no benefit to them.

Initial commission on pensions is normally higher than that on savings plans though.

Gerard

www.prsa.ie