Sounds to me like you’re doing everything right from a planning perspective prioritising the right things now, with the intention of shifting focus to pension provision once you’ve ticked off the house.Personal details
Age: 34
Spouse's age: 34
Number and age of children: One. – 8 months old, plan to have one more.
Income and expenditure
Annual gross income from employment or profession: €100K
Annual gross income of spouse/partner: €54k
Monthly take-home pay: €4,800 + €3,100 = €7,900
Type of employment: Both semi-state, predominately working remotely in Clare, one day a week in the office in Dublin.
Employer type: Permanent employees
In general are you:
(a) spending more than you earn, or
(b) saving?
Saving – slightly over €3k per month (once we have purchased home will revert to €2k per month realistically with childcare, increase pension contributions etc.)
Rough estimate of value of home: N/A – Currently renting €1,500 per month
Amount outstanding on your mortgage: N/A
What interest rate are you paying? N/A
Other borrowings – car loans/personal loans etc – No loans
Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? N/A
Savings and investments:
Savings- €200k (deposit account) incudes redundancy payment €76k
Do you have a pension scheme? Yes both have DC pensions - €84k and spouse €32k
Currently not maxing our pension as concentrating on purchasing home. Contributing 7% and 7% matched from employer and spouse is 5% and 5% matched from employer. These are max employer contributions. Plan to increase contributions once we buy a house.
Do you own any investment or other property? No, but spouse is an only child and will inherit house valued at approx. €260k in next number of years as father is quite elderly
Life insurance: Yes both have 4 times salary through work but an area we must review now that there are 3 of us.
What specific question do you have or what issues are of concern to you?
1.We are currently in the process of purchasing our first home (mortgage approval for €535k), had originally set our budget between €450k & €550k range however a forever house has come on the market for €670k and would require no work on improvements. Contemplating making an offer but concerned it would put us under unnecessary pressure.
2. Had initially planned to have a smaller mortgage, using surplus to maximise pension and grow other investments with the hope of retiring at 60. Do you think the larger mortgage would significantly impact this?
3. Outside the above is there anything you advise we should focus on, all advise is welcomed!!
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Thanks
I'm making assumptions but any house in Clare for that amount is presumably a fairly substantial size. Be prepared for utilities, maintenance etc being significantly more expensive. If your house is twice the size of an average house, you will use twice as much to heat it and run it. It's at least worth bearing in mind especially if the BER rating is not that good.3. Outside the above is there anything you advise we should focus on, all advise is welcomed!!
The maximizing of pension contributions is often cited as universally the right thing to do but I’m not sure it is in this instance.1 & 2 are competing objectives but that's not to say you can't achieve it. To retire at 60, you both need to be maxing your pension now and you need your mortgage cleared in 25 years.
If you were both maxing pensions , your take home pay would be more like €7.1k. Using most of your savings and taking out a 25 year €500k mortgage at 4% will have a monthly payment of ~€2650.
The next 5-7 years will include a lot of expenses with (potentially) 2 kids for childcare. Probably in the region of €1-1.5k.
It leaves you with €3-3.5k a month for everything else. That's not bad but it would mean being very prudent and regimental with your spending.
I'm making assumptions but any house in Clare for that amount is presumably a fairly substantial size. Be prepared for utilities, maintenance etc being significantly more expensive. If your house is twice the size of an average house, you will use twice as much to heat it and run it. It's at least worth bearing in mind especially if the BER rating is not that good.
With 2 semi-state jobs, you probably have reasonable job security and potential for increasing income so you should be able to make it work but in the short term it might be a bit tight.
Start with some basics, especially now that you have a kid. Update your will, including guardianship if the worst happens to both of you. I'd also recommend a tax review to ensure you are claiming all you can (Home working for example, are you claiming for broadband, electricity etc)
Assuming you bought the new house for €670k and used €150k of your cash against it (bear in mind legal and moving costs will be around €10K) you'll be well able to afford the mortgage by reducing the amount you save. Ballpark you are looking at around €8-900 a month on top of what you are paying on rent assuming a 30 year mortgage. An inheritance is always a risky plan to reduce the mortgage but assuming it happened in 5 years, your outstanding mortgage would then be around the €250k mark.
At that stage, and assuming both are still working, you should be able to increase the amount you are paying down.
Sounds to me like you’re doing everything right from a planning perspective prioritising the right things now, with the intention of shifting focus to pension provision once you’ve ticked off the house.
On the house front I’d strongly encourage going for house you want that will satisfy your needs for the longest period. Moving again would have frictional costs and just be a general pain with (hopefully) two kids. You can easily afford the repayments.
I’m assuming as semi state employees your employments are relatively secure and in all likelihood your salaries will continue to increase year on year.
We faced a similar decision 3 years ago, nearly backed out for a short term house but ultimately really pushed the boat out to get the house we wanted. It’s financially and emotionally the best decision we ever made. Every pay rise & every income tax band adjustment makes the mortgage ‘burden’ fade further from my mind.
In terms of your ability to retire. Never underestimate that your PPR is often an extremely tax effective long investment. Don’t just see it as a cost, as despite the protestations of some, it really is an asset!
Getting the balance right between both objective is the challenge but would lean towards having a nicer home over early retirement, if both weren't attainable.1 & 2 are competing objectives but that's not to say you can't achieve it. To retire at 60, you both need to be maxing your pension now and you need your mortgage cleared in 25 years.
If you were both maxing pensions , your take home pay would be more like €7.1k. Using most of your savings and taking out a 25 year €500k mortgage at 4% will have a monthly payment of ~€2650.
The next 5-7 years will include a lot of expenses with (potentially) 2 kids for childcare. Probably in the region of €1-1.5k.
It leaves you with €3-3.5k a month for everything else. That's not bad but it would mean being very prudent and regimental with your spending.
I'm making assumptions but any house in Clare for that amount is presumably a fairly substantial size. Be prepared for utilities, maintenance etc being significantly more expensive. If your house is twice the size of an average house, you will use twice as much to heat it and run it. It's at least worth bearing in mind especially if the BER rating is not that good.
With 2 semi-state jobs, you probably have reasonable job security and potential for increasing income so you should be able to make it work but in the short term it might be a bit tight.
How certain are you that you will continue to be allowed to work only one day a week in the Dublin office? Is that contractually agreed? Was this the case before Covid as well that only one day a week in the office was sufficient? Were you to lose your job or decide to change it, what other job opportunities would you have while based in Clare, at what salaries?
Your whole plan is based on your current job (at a Dublin salary) that currently permits you to work from home 4 days a week. Organizations are still in the process of figuring out what their long term WFH model is going to be. Changes are likely going to happen in the years to come.
If we make some rough assumptions of 3% average wage inflation, 2% average price inflation and a 9% average equity return after fees.
If the OP maxed out his own contribs at 20% of salary (+7% employer), he’d be projected to have a nominal pension pot of €4.1m at age 60 or €2.5m in todays money. So you’re already up against the SFT and hoping it at least keeps pace with inflation (judging by recent history I wouldn’t be optimistic of this).
1.We are currently in the process of purchasing our first home (mortgage approval for €535k), had originally set our budget between €450k & €550k range however a forever house has come on the market for €670k and would require no work on improvements. Contemplating making an offer but concerned it would put us under unnecessary pressure.
Annual gross income from employment or profession: €100K
Annual gross income of spouse/partner: €54k
Currently not maxing our pension as concentrating on purchasing home. Contributing 7% and 7% matched from employer and spouse is 5% and 5% matched from employer. These are max employer contributions. Plan to increase contributions once we buy a house.
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