Maximise return for spare cash

You've hit on a topic we've debated a lot. With taking the time off for maternity, she will only get relief at 20%, so we're more inclined to pursue goal #2 and overpay the mortgage, once her income comes back on stream later in the year.

For 2021, that's the big question.... Current thinking would be to continue with the same approach for two reasons 1) We have enough exposure to equities via my pension, 2) Debt is cheap right now, it might not always be this way. Spending a few years getting the mortgage down, so that if interest rates ever do go up, our exposure is reduced, seems like the prudent thing to do, even if returns may be better via her PRSA. Happy to hear other views however, it'll help us make an informed decision.

Re: my pension, yes I've looked, it's in a passive equity fund, with low charges. Will automatically move into more interesting (i.e. expensive) funds in my 40s, if I don't step in and take control. It's highly likely I will step in... another topic to plan for :)
 
RedOnion said:
Assuming you're jointly assessed, flip part of her tax band to you, she keeps 26,300 and anything over that will be high rate, therefore high rate relief if she puts in pension.
You're not talking about huge amounts, but might as well keep both pension pots growing.
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That is a great idea about how to maximise relief for a couple where one is already at max contributions and the other is a lower earner. Worth a key post imo. It's first time I have seen this suggestion.
 
It's that time again folks, I've no idea whether anyone is interested in this, other than myself, but I find it useful anyway!

2020 Highlights:
  • Pension: Maxed out contributions, coupled with market performance & company contributions, pots now at about 350k. (Target met)
    • Mrs maintained her 4% contribution, pot at 22k (plan was to make AVCs, so target missed)
  • Mortgage: Now 420k (approx 50% LTV, no overpayments this year, the plan was to do this once my Mrs returned to work, there's no good reason why we didn't, so target missed!)
  • Income: Down to 30k (due to extended unpaid leave which was planned, target met)
  • Income: Up to 155k (moderate increase in base salary, improved performance bonus and RSU vest mean target exceeded)
  • Expenditure: Increased childcare costs (now ~2k/mth which is as expected, so target met, although a painful one!)
  • Savings & investments: 130k (no clear target for '21, area of improvement, see below)
Looking ahead...

2021 Plan:
  • Pension: continue to max my contributions / maintain Mrs 4% contribution (for employer match) & make use of AVC allowance to max her contributions.
  • Mortgage: Resume 10% overpayment
  • Income: Mrs, expect back to normal (~55k pa)
  • Income: Mine, expect to be in the 145-155k range (subject to final bonus / RSU vest)
  • Expenditure: No major expenditure planned, continued increased childcare costs (additional 12k pa)
  • Savings & investments: grow by 30k
We're very fortunate that the pandemic has had no real impact on our livelihoods, it's been a different year obviously, but in many respects there have been benefits as I've had less of the usual work obligations (travel, work dinners etc) which have improved work-life balance.

For the coming year, one of the ideas we're toying with is whether my wife opens a self-directed PRSA for her AVCs, rather than adding to her existing PRSA account with its high charges.
 
You are clearly doing exceptionally well, very healthy pension, healthy equity in your PPR and very good income. My only question is why do you have so much in cash (€130k) and expecting this to rise by another €30k this year? I can understand keeping a larger buffer while your spouse was on mat leave but now surely you should just pay a big chunk (€100k) off your mortgage? If I have read the thread correctly, you have upgraded both cars in the past 2 years so you don't need to hold anything back for purchasing new cars so what other major expense do you see where you need (€130k+) on hand?

It would also have a positive impact on your monthly cashflow if you maintain the term length, reducing your minimum mortgage payment by ~25% (€420k >> €320k)

As RedOnion points out so regularly:
RedOnion said:
Just remember, you can pay as much as you want. The 10% is just the limit before the check if a break fee applies. Even if a break fee applies, it will ALWAYS be less than the amount of interest you will save.
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But overall, well done on planning and controlling your finances so well!
 
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_OkGo_ said:
You are clearly doing exceptionally well, very healthy pension, healthy equity in your PPR and very good income. My only question is why do you have so much in cash (€130k) and expecting this to rise by another €30k this year? I can understand keeping a larger buffer while your spouse was on mat leave but now surely you should just pay a big chunk (€100k) off your mortgage? If I have read the thread correctly, you have upgraded both cars in the past 2 years so you don't need to hold anything back for purchasing new cars so what other major expense do you see where you need (€130k+) on hand?

It would also have a positive impact on your monthly cashflow if you maintain the term length, reducing your minimum mortgage payment by ~25% (€420k >> €320k)

But overall, well done on planning and controlling your finances so well!
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Thanks for the feedback, we're human at the end of the day, wanted to give an honest update on what we did well, and what we didn't, because that's life and nobody's perfect! If we can do enough of the right things year after year, figures crossed we should be okay.

Good question re: paying off the mortgage. We've only about 30% of the total in cash, the rest is invested, some of which can be easily liquidated, the rest only after a penalty. We've toyed with the idea of using some against the mortgage before, although we would keep the monthly repayments the same, with a view to paying the mortgage early, rather than lowering the monthly payment. It's a good prompt though, must run the numbers, thanks for the suggestion.
 
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For those who've been following this thread, I've been posting an annual update on our finances for the past few years, assessing how we've done for the year just gone, and outlining our plans for the forthcoming year. We hopefully achieve these plans, we sometimes exceed them, and occasionally, we miss them, but that's all part of life. The exercise itself is very useful, helping us take stock of where we are, get feedback on what we're doing, and stay focused on our plans for the future. So without further ado, here's our 2021 update.

2021 Highlights:
  • Income:
    • Mine, 159k, that's up on 2020 as a result of bonus & LTI vest (Target Exceeded)
    • Mrs, back to normal, 55k (Target Met)

  • Pension:
    • Mine, maxed available relief, pots now at ~480k (Target Met)
    • Mrs, increased contributions to ~75% of available relief. In addition, retrospectively maxed 2020 contributions (a miss from last year). Pot now at ~36k, long road ahead but finally making progress (Target Met)

  • Mortgage:
    • Overpaid €600 pm / 33% overpayment (Target Exceed)
    • Balance now at 400k. Puts us at ~40% LTV, based on today's (inflated) prices

  • Expenditure/Cashflow:
    • Tracked in much more detail in 2021 (new pandemic hobby). Given the year that was in it, we spent less in 2021 overall. Looking forward to a more detailed comparison this year using all this lovely new information I've collected over the past 12 months!
    • For our regular expenditure, childcare is down slightly, as my eldest has started primary. One eye-opener is that after-school costs aren't too far off full time creche fees as it turns out.
    • Unplanned expenditure included a couple of white-goods which needed replacing, and a minor car repair, nothing which broke the bank
    • Finally, despite Covid's best efforts, we had a nice summer holiday!

  • Savings & investments:
    • 50k in cash. We liquidated a few investments in December to put towards our mortgage (see 2022 below).
    • Remaining savings / investments (~100k) for emergency purposes, investments which can't be accessed without penalty, and/or a few other items kept for fun (yes it's probably wiser to put everything into the mortgage)

  • Savings Rate (new for 2021, going to track this rate from now on):
    • 44% (using this model, > total saved/invested in a year, expressed as a % of income)

2022 Plan:
  • Income:
    • Mine, forecasting 150-155k (lower LTI vest than last year, otherwise income should be similar)
    • Mrs, forecasting 58k (subject to bonus, a new element of her pay, will see what comes to pass)

  • Pension:
    • Me, big 4-0 this year and I'm thrilled! Brings me into the 25% AVC contribution bracket. Aim to max contributions accordingly. As far as I'm aware I can do this on the entirety of 2022 income, regardless of when in the year I turn 40 (open to correction).
    • Mrs, ditto (less thrilled). Plans to maximise her contributions in this bracket too. Also retrospectively max out her remaining 2021 allowance.

  • Mortgage:
    • We're aiming to clear our mortgage in 10 years. We will review this goal periodically to continually assess if it's the best use of spare funds at any given time
    • Plan for 2022 is to switch providers to reduce our rate, but also to knock 50k off the balance using the investments we just liquidated

  • Expenditure / Cashflow:
    • As inflationary pressures increase, expect a knock on effect on day-to-day spending. How much this will affect us we will have to see. With good 2021 data available, there's a clear baseline from which to make a comparison in 2022
    • No other large purchases planned, nor changes to regular expenditure.
    • Fingers crossed another nice family holiday will be on the cards.

  • Savings & investments:
    • Shifting focus to Savings Rate from now on, see target below. After-tax savings will be channelled into the mortgage in line with the plan above

  • Savings Rate:
    • Target 50% (increase largely due to change in pension contribution bracket)
 
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EDIT: Mistake spotted with the new savings % model. If I follow it correctly, the actual rate was 44% in 2021, and fingers crossed, should be 50% this year. Following a consistent calculation approach, and tracking it correctly I suppose is what's most important.
 
For anyone who might be interested, quick overview of the model used to calculate the savings rate. The method used on reddit seemed reasonable but I would be interested in how others do this, if anyone has their own approach?

Savings Rate
  1. Take-home/after tax income savings (incl. mortgage overpayments)
  2. Pre-tax contributions (eg: pension contributions, incl. any employer matching)
  3. Total Savings (1+2)
  4. Total Income (Take-home/after-tax income & any pre-tax contributions)
  5. Savings Rate % = Total Savings (3) / Total Income (4)
PS: Thanks for taking the time to read the latest update, if anyone thinks we should be doing something differently for our 2022 planning, I'm all ears!
 
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Unsure if there's a separate thread. A friend of mine recently retired is looking for a home for a lump sum, fairly decent amount 50-100k. Besides state savings, what other options does she have?
 
mojoask said:
  • Pension:
    • Me, big 4-0 this year and I'm thrilled! Brings me into the 25% AVC contribution bracket. Aim to max contributions accordingly. As far as I'm aware I can do this on the entirety of 2022 income, regardless of when in the year I turn 40 (open to correction).
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That's correct.
 
Another year, another update! Actually it's 5 years since I first started this thread, time really does fly.
Thought I'd do a 'before and after' comparison on this occasion, especially as we both hit a major age milestone in 2022.

Age: 35 / 40
Spouse’s/Partner's age: 35 / 40

Annual gross income from employment or profession: 125k (incl bonus) / 160-170k (depending on bonus / RSU vests)
Annual gross income of spouse: 44k / 64-65k (depending on bonus)

Monthly take-home pay: 8k / 8.2k

Type of employment: Private (both) / Private (both)

In general are you: saving approx 3k pm / 7.6k pm (considering gross AVCs & employer pension contributions)

Rough estimate of value of home: 730k / €1m
Amount outstanding on your mortgage: 450k - 61% LTV / 307k - 31% LTV
What interest rate are you paying?: 3% (30 yrs remaining) overpaying by 10% of the monthly repayment / 1.95% (25 years remaining) overpaying by up to 10% of outstanding balance p.a.

Other borrowings – car loans/personal loans etc: None / None

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

Savings and investments: 75k / 85k

Do you have a pension scheme? Yes, me a company DC scheme (~175k) / ~455k
/ Her, a company sponsored PRSA (unsure balance but it's small, charges are high but kept as her company contributes) / now an OPS, ~55k

Do you own any investment or other property?: No / No

Ages of children: 2 / 6 & 3

Life insurance: I have, through work / no change

Summary
Reflecting on the last 5 years, despite any recent market turmoil, my pension has been the star performer during this period. It just shows you what can happen when you combine buoyant markets, tax relived contributions and compounding returns. We've also successfully chipped away at the mortgage, especially in the last 12 months. The one regret is not sorting out my Mrs' PRSA sooner. On the bright side, she has maxed AVCs for the past two years, and is on course to do the same in 2023. She's also in a bona fide occupational pension scheme now, with lower charges, which bodes well for the future.

One thing I hadn't realised is just how little our take-home pay had changed since I started the thread, despite an increase in earnings. This reflects how much harder our money is working for us, and that's a result of all the good advice we've received on AAM. So thank you to all the contributors here, you've made a big difference for us.
 
Happy new year all. As well as my last post, I'm continuing the tradition of reviewing the 12 months just gone, to see how we fared, and lay down the plan for 2023. Helps us to focus our minds, hopefully some of you will find it of interest too.

2022 Review:
  • Income:

Forecast
Actual
Target
Update

Mine
150-155k
160k
Exceeded
Increase in base salary

Mrs
58k
64.5k
Exceeded
Increase in base salary and better bonus than expected

  • Pension:

Forecast
Actual
Target
Update

Mine
28.5k
28.5k
Met
25% allowance used / increase in contributions

Mrs
14.5k
21.6k
Exceeded
25% allowance used / increase in contributions. Also retrospectively maxed out 2021

  • Mortgage:

Last Year
Actual
Target
Update

Balance
400k
307k
Exceeded
Switched lender & locked in at 1.95% until 2029. Reduced balance by ~90k

  • Expenditure/Cashflow:

Forecast
Actual
Target
Update

Exceptional
0k
11.5k
Missed
Home improvements

  • Savings & investments:
    • Savings/investments focused on pensions and mortgage over-payments
    • Remaining funds (~80k) for emergency purposes, investments which can't be accessed without penalty, and a few other bits to keep things interesting.

  • Savings Rate:

Forecast
Actual
Target
Update

Savings Rate
40%
51.6%
Exceeded
Using this model > Total saved/invested expressed as a % of total earnings (excluding tax).

Saved/Invested = Mortgage overpayments, pension contributions (by us & employers), and any after-tax savings

2023 Plan:
  • Income:
    • Mine, forecasting 170-175k (subject to bonus/RSU vesting)
    • Mrs, forecasting 60-65k (subject to bonus)

  • Pension:
    • Mine, personal contributions to the maximum limit (28.5k)
    • Mrs, personal contributions to the maximum limit (15k + bonus)

  • Mortgage:
    • Save 2k a month towards an overpayment at year-end (target balance: 275k). On the off chance we find a better return, after tax, in a guaranteed savings a/c, we will keep the funds instead

  • Expenditure / Cashflow changes:
    • Nothing major planned (fingers crossed)

  • Savings & investments:
    • Continue to prioritize pension contributions & mortgage overpayments

  • Savings Rate:
    • Target 45-50%
 
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