Money Makeover - Trying to shift Mindset from Savings to Investment

[Knodel]

Hi Good People,

Will attempt the screenshots first and if they are not clear will Copy and Paste.

Have had a recent enough Financial Review into AVC's and as my situation is not very clear yet, AVC was not recommended at this time - if I continue to work until 65 years. Alternative is to find out the steps for 5 / 10 /15 years investment - tax efficient? better rate of growth than deposit interest - but I am not really sure. Thank you so much for your time in advance.


PERSONAL DETAILS
Age: 50
Spouse’s/Partner's age: Single
Children / Dependents: No Dependents
Life insurance: No Life Insurance - as no home - no mortgage and no dependents.
Salary Protection: Pay €74.54 pm towards Salary protection (Cornmarket: with exclusions)

INCOME & EXPENDITURE
Type of employment: Public Sector
Profession: Post Primary Teacher
Annual gross income: Gross Pay 2022 €77,885
Dept. of Ed & Science: Salary Scale 25 (for next 10 years)
Contract: CID (Contract of Indefinite Duration)
Pension Scheme: New Entrant / Post 2004 Pension Scheme
> 26 weeks absent from working with DES in 2005.
I do have PRSI contributions for this time from 1999 - 2024

SUMMARY OF ASSETS and LIABILITIES
Family home value: 0 Renting
Other Borrowings: 0
Cash: €370000 - Savings

• Long Term Renter (€750 cash)
• Big Regret - Just didn't know where I wanted to live or how I wanted to live (rural - urban etc).
• The 30's and 40's just flew by!
• None - Have no Credit History / No Credit Card

Defined Contribution pension fund:

• Unfortunately Post 2004 (65 years is Pension Age) - Figures completed below.
• Benefits listed as:
  • Retirement pension and lump sum
  • Death benefits
  • Spouses’ and children’s pensions (No Spouse or Children)

Total net assets: €370,000



In general are you: (a) SPENDING more than you earn or (b) SAVING?

SAVER - Conservative spending all my working life:
WHY?

• Apart from Hectic Busy Work Life, I tend to live a pretty low key life.
• Long Term Renter - €750 pm
• Do have some regular medical costs (around €50 - 100 per month).

LACK of FINANCIAL KNOWLEDGE & CONFIDENCE:
WHY?

• No real understanding of inflation / benefit of TIME.
• Fear of Managing Debt / Credit / Paperwork.
• Never bought House - Did not know where I wanted to live.
• No knowledge around investments, finances, pensions etc.
• Savings were in Credit Union, Prize Bonds, and Irish Banks like Ulster, KBC, PTSB.

2023 MINDSET CHANGE & AAM?

• Stumbled onto Ask about Money in 2023 and a few YouTubers about ‘deposits & investments’.
• Changed to N26. Using Trade Republic, Lightyear, (On Demand) Raisin (Short Term)
• Started to figure out Pension Record / AVC / PRSI etc.

Potential Savings: (2023 Figures):

Net income (Top of Post Primary Salary Scale) = €43,296 (+ Sometimes Exam work €2000)
Estimated average living costs = €23,000 - €30,000
Potential Savings per year = €18,000 to 25,000

• I have saved €370,000 since starting work in 1997. Euro by Euro!
• I do not expect inheritance or other non-earned funds/property in my future.
• Up until 2023, when I stumbled onto the AAM forum (Thank you @Brendan) and the DEPOSIT thread (Thank you by @Lightning).
• I was letting Inflation eat away as savings as they sat in Prize Bonds / KBC+UB+ PTSB Saving Account. That was all I knew about.
• Since late 2023, I have opened up accounts with
  • N26 (2.8%)
  • Trade Republic (3.75%)
  • Lightyear
  • Advanzia (3.76%)
  • Raisin (4%) : maturing between now and January 2025 etc.

QUESTION 1
Ideas & Suggestions Appreciated

• I would love 'ideas' / 'suggestions' / 'options' / ‘links’ on what I could do for the next 10 years (50 - to 60 years).
• Although I have read a good few detailed threads here, I still do not know if they are relevant to me or grasp the information fully. (Buckets / PRSI thread / Executive only AVC’s / Global Equities).
• Attempting to earn some level of deposit interest with Term and Instant Options.
• Working to gain more Financial Confidence & Knowledge.
• Where can I switch from 'saving money' to timidly typing the word 'investing'. From AAM, I know I need to change my mindset from just ‘saving’ the money (back to the times of Post Office Sticker Books - squirreling away) to invest for the next 5 (up to 55 years) to 10 years (I’ll be 60 years) while I figure out if I am able to keep 'teaching' until 63 or 65 years.
  

PENSION INFORMATION Do you have a pension scheme?

• Yes Public Service
• I have managed to get a Service Record, Employment Statement / Revenue Archive Statement.
• Post 2004 - 23.5 eligible years in my 50th year.
• Pre 2004 - 4.5 years preserved pension (not sure the benefit of this, but advised not to move it over to Post 2004 if ever asked by DES to do so).

QUESTION 2​

• I was able to purchase “transfer service” from working in ETB and pay €407 for 0.35 of a year.
• I will have to pay for the pension for teaching years worked in 1997-2000 ("buy back years"), as paid by the School or Board of Management. I have asked to pay for it now, but DES Pensions stated “can only be bought at retirement and cannot be bought back in the meantime”. Would anyone know why I cannot pay for this now, instead of DES taking it from the lump sum? There may be a good reason.

QUESTION 3​

• Have an option to buy 2 Notional Service Years (July 1998 to Sept 1999 and Jan 2005 to August 2006). Apparently these can be very expensive? I am about to do the paperwork. Any advice or has anyone gone through this route recently?

ADDITIONAL VOLUNTARY CONTRIBUTIONS
KEY Factors I need to think about related to retirement age & Pension:

I have No AVC's YET

• I had always assumed I was on Pre 2004 Pension (as had no break in PRSI since 1999). With this information, went to aFinancial Advisor as a "Post 2004 Old Entrant" . Advice was to get a "last minute AVC" just before retirement of 60 years of approx €14,800.
• However, in January 2024, I found out that I had moved in 2005 to the NEW SCHEME (Post 2004) because I had been absent from DES payroll for more than 26 weeks, without appropriate leave.

Had a follow up Financial Review in 2024 and choices are to:

• Option 1 - Stick it out until 65 years. OK - I do love my job! - almost more so than 'daily life' if you know what I mean.
• Option 2 - Work until 63 at least (and for this I would need to pay an AVC).

QUESTION 4
Is there a way to calculate HOW MUCH WOULD THIS COST - Is there a way to calculate the cost of the shortfall?

Option A: Retire at 65 on the post 2004 scheme	Option B: Retire at 63 on the post 2004 scheme
NOT on a cost neutral early retirement.	Cost neutral early retirement.
65 years - Normal retirement age is 39.7 years - Calculations based on service €81,409 - Final pensionable salary €121,198 - Tax Free Lump sum at 65 €40,399 - Includes Supplementary Pension age 65 €40,508 - Includes State Pension from 66 onwards €122,114 - Maximum Lump Sum achievable	65 years - Normal retirement age 37.7 years - Calculations based on service €81,409 - Final pensionable salary €110,603 - Tax Free Lump sum at 65 €21,924 - Pension between 63 and 64 €33,952 - Includes Supplementary Pension age 65 €36,344 - Includes State Pension from 66 onwards €112,114 - Maximum Lump Sum achievable

HOUSING:

• I do not own a HOUSE yet, at the moment.
• I will need to purchase it in the next 5 to 10 years.
• In 5 - to 10 years, if the Housing Situation improves with New Technology / Smaller homes for 1 person etc, I might then be able to then figure out WHERE I am going to live? It isn’t feasible to buy now near where I work right now with housing demand.
• I know I will not be able to stay renting until I roll into a Nursing home.
• I am responsible for myself. No partner / No Children / No close Siblings / Almost afraid -as I could live a long life - just read the AAM thread about 'complicated situation re Aunt with Fair Deal'. That type of scenario is ahead of me, I imagine.
• You really have to be responsible for yourself.

 

[Brendan Burgess]

Housing is your key issue and that is what you need to address. Focus on solving that and then you can work on the others. If you ignore that and manage to get an extra 1% a year on your deposit accounts, it's pretty meaningless.



€375k cash.

Gross pay €78k

You should be able to comfortably borrow €250k.

The repayments over 15 years will be about €2,000 a month.

Half of this will be capital so the other half or €1,000 will be interest.

Are you saying that you cannot buy a place equivalent to where you are renting now for €750 a month for €600k?

Doesn't seem right.

Brendan

 

[Brendan Burgess]

You say that you will need to purchase in the next 5-10 years. At that stage, you will find it much harder to get a mortgage as the time left to repay will be very short.

So you need to buy now.

If you are living in an RPZ and paying €750 for an apartment when the rent should be €2,000, it might make sense to buy an investment property now, rent it out, and stay living where you are. But no need to go into this unless you confirm that this is the situation.

Brendan

 

[_OkGo_]

Alternative is to find out the steps for 5 / 10 /15 years investment - tax efficient?

It's very likely that you won't need to invest in anything at all. Your one and only concern should be housing. In fact it would be foolish for you to put €370k into anything other that secure deposits until you buy a house. The major risk to you is that you invest in something like an ETF and it falls significantly just before you want to buy a house.

You are comfortable with rent now but your timeline to purchase a property should be in the next 12-18 months, not 5-10 years.

In 5-10 years, if the Housing situation improves with New Technology/Smaller homes for 1 person etc, I might then be able to then figure out WHERE I am going to live? It isn't feasible to buy now near where I work right now with housing demand.

I don't really understand this, what is your criteria for the type of property you want? You are probably being way to specific in what you want and are ruling out a lot of perfectly suitable properties

You have more purchasing power than a lot of people so demand in the market does not limit you. You have €370k in cash and could comfortably afford to borrow another €130-230k. Buying for €500-600k will still buy a lot of house in most parts of the country outside of Dublin so what is your limitation?

It's important to remember that whatever house you buy does not have to be the house you live in for the next 40 years. If in 5-10 years time you feel like moving, it shouldn't really be a problem for you.

In your shoes, I would do the following:
- Go to a mortgage broker and get starting with the basics for getting AIP and see what your options are in terms of lenders, term and amount.
- Decide where you want to live and what type of property you want to live in...then expand your criteria a bit. No house will ever tick all the boxes
- Slightly left field but if you are happy in your current rental, would you consider approaching the landlord and purchasing it? At least worth having the conversation if you like the house and the area.

Other than that, the choice between retiring at 63 and 65 seems obvious. You enjoy it more than 'daily life' so plan to keep going as long as possible. It's not a financial decision but rather a lifestyle one because you like doing it. But if your circumstances were to change, the income from retiring at 63 looks like it is sufficient to cover your lifestyle so either way you are looking good with both options.

 

[Protocol]

A few quick points;

(1) buy a house
(2) in your fifth box above, you have striked through Death Benefit. I don't know why, as all public servants in PS pension schemes have a Death Benefit if they die in service.
(3) do you check that you tax credits and SRCOP are correct? The reason I ask is that maybe some teachers are missing the flat-rate expenses tax allowance

(4) you are a member of two teachers pensions schemes, and going by what you say, this is correct.

Pre-2004 scheme = 4.5 years service
Post 2004-scheme = most of your service

Does this mean that the pre-2004 scheme will pay out a (small) lump-sum at age 60, and a pension from age 60?

 

[theObserver]

What jumps out at me is "Big Regret - Just don't know where I wanted to live or how I wanted to live (rural -urban etc)".

I think you need to use the money to invest in yourself first.

Find somewhere in Ireland that interests you and go there. Book a hotel or a B&B and just go. Leave on a Friday evening and come back on a Sunday. Visit a city, a village, a town and a small town. What did you like? What didn't you like? You'll want a place where you can just sit down and be happy. Or a place where you wake up excited.

If you like teaching, then you like working with people or least being around people. That would point towards a town or city rather than a rural village.

Give yourself a deadline. Then decide on where to live and move towards it.

Don't be afraid of buying a house then selling it a few years later for something better.

All else fails, make a list of areas within a 90 minute commute of work. Eliminate areas with a high crime rate and go from there.

 

[Knodel]

Housing is your key issue and that is what you need to address. Focus on solving that and then you can work on the others. If you ignore that and manage to get an extra 1% a year on your deposit accounts, it's pretty meaningless.

View attachment 9074

€375k cash.

Gross pay €78k

You should be able to comfortably borrow €250k.

The repayments over 15 years will be about €2,000 a month.

Half of this will be capital so the other half or €1,000 will be interest.

Are you saying that you cannot buy a place equivalent to where you are renting now for €750 a month for €600k?

Doesn't seem right.

Brendan

Well Brendan - thank you for reply. It gave me a lot to think about today. I even went onto daft for first time in a while.

No - the main issue is not the money. I think the main issue is my 'head'. It always has been 'my head'. Of course, you plan to buy a house when you are younger … and then....

I think I moved around a lot around Ireland. It depended really where the 'teaching job' was and then I moved there. I was not really secure in a job until about 37 years when CID's (contracts) came in. So I think, I got used of the idea of not feeling 'secure'. I now live in the area that I work for well over 15 years. Life just happened! I never planned on living here! I didn't plan to not have a family etc - sometimes life happens! I often feel I have a 'postal address' but 'no home'.

I remember 20 years ago, going into a bank about a mortgage. I think I was shocked at the cost of a mortgage.
Just reading your figures above today, I actually understand them. With hindsight, I can now see how in Ireland, house prices do go up (mostly).
I can reflect now that I didn't 'buy' partly because I didn't understand the way that INTEREST and CAPITAL work in a mortgage.
Psychological, it was like everyone was always stressed with the 'mortgage'.
I struggle with calculations, but mainly %, deductions - saving was stress free - just addition. (That must read strange for all the experts who give so generously on AAM).

Then when the financial crisis came, and there was so much hurt. I didn't even think to buy a house then. There were so many horror stories.
The one time, I did start to go to house viewings in a 'focused way', I found it difficult and it 'hurt' as I 'felt I should buy' but didn't really have a desire to - It was 'a poor business move' but not having children/spouse 'hurt'. Hearing the 'hope' in young families on the way around used to 'floor me'. I remember one house that I actually really liked €198,000 but went up to€215,000 and I kind of gave up. I didn't want to be competing with families. I felt they deserved it more.

So your instinct was 100% - "doesn't seem right"

 

[Clamball]

What type of home do you live in now? A house, an apartment, garden, no of bedrooms. What aspects do you like/dislike? If you imagine yourself living in a house what do you see. Town centre apartment/country cottage. Roughly where do you live? County, city etc.

Give us a few ideas and let’s see what the posters find for you on daft or my-home. As a few posters said find the homes that tick your boxes, ignore areas with high crime and then just go for it.

You are buying a home for yourself for the next 40 years and given your level of savings, stable job you can probably afford up to €600 K so go for it now, during the summer when you have time. It sounds as if you are easy going with no specific wants around accommodation so it should be straightforward. Buy now while you have the time energy and enthusiasm. And you seem very caring wondering if you are “taking” a home from a deserving family but every family unit, including you, have equal rights to a home if they can afford it. You will be freeing up a very affordable rental unit if you move.

And you will probably have savings to bridge the gap between 63-65 by the time you get to 63 so I would not consider drawing down a pension early with penalties if you can avoid it. - the devil of course bring in the detail - you may be able to draw down the 4.5 yr one st 60 and keep working, so that might be sufficient to tide you over.

 

[Brendan Burgess]

I remember 20 years ago, going into a bank about a mortgage. I think I was shocked at the cost of a mortgage.
Just reading your figures above today, I actually understand them. With hindsight, I can now see how in Ireland, house prices do go up (mostly).
I can reflect now that I didn't 'buy' partly because I didn't understand the way that INTEREST and CAPITAL work in a mortgage.

Many people have some trigger which "forces" them to buy a house

• If you are going out with someone for a long time and planning to stay together, it's a good impetus to buy a house together.
• They qualify professionally and so can afford a house for the first time
• If you are renting and it's very expensive, you find that it's cheaper to own your own home
• Someone comes back from abroad with cash and it triggers them to buy

But a lot of people, especially single people, have no "deadline" to buy a house so they tend to defer the decision for many reasons. Prices are too high. They don't know where they want to live. Where they are living is cheaper and more convenient than where they could afford to buy.

In your case, your age, 50, should be a trigger. You are where you are. Address the issue now and buy a house before the end of this year.

 

[DeeKie]

I think thinking about your hobbies might be helpful. What do you really enjoy doing in your spare time? If it’s swimming, think of the sea. If you like golf a place that has a thriving golf club might be great. I’m originally from county Kilkenny and I often think that Kilkenny city has a lot going for it. I also think Westport is a gem.

 

[Knodel]

You say that you will need to purchase in the next 5-10 years. At that stage, you will find it much harder to get a mortgage as the time left to repay will be very short.

So you need to buy now.

If you are living in an RPZ and paying €750 for an apartment when the rent should be €2,000, it might make sense to buy an investment property now, rent it out, and stay living where you are. But no need to go into this unless you confirm that this is the situation.

Brendan

I had to google RPZ, so it isn't that. Rural area / unusual accommodation. With rents the way they are, no doubt landlord could get 3 times the rent. Think we are both happy with the status quo.

 

[Brendan Burgess]

That does make the decision more difficult.

If you are renting at 1/3rd the market rent, it's hard to give that up.

Brendan

 

[Knodel]

Many people have some trigger which "forces" them to buy a house

• If you are going out with someone for a long time and planning to stay together, it's a good impetus to buy a house together.
• They qualify professionally and so can afford a house for the first time
• If you are renting and it's very expensive, you find that it's cheaper to own your own home
• Someone comes back from abroad with cash and it triggers them to buy

But a lot of people, especially single people, have no "deadline" to buy a house so they tend to defer the decision for many reasons. Prices are too high. They don't know where they want to live. Where they are living is cheaper and more convenient than where they could afford to buy.

In your case, your age, 50, should be a trigger. You are where you are. Address the issue now and buy a house before the end of this year.

@Brendan Burgess Your commentary has been helpful - I appreciate it.

A few quick points;

@DeeKie @Clamball @_OkGo_ @theObserver It has taken me a while to respond, as I can only leave one message a day as a new member.

@Protocol
I have learnt so much from your input - although I still sometimes do not take in everything.

The most important one was your input from 2005 on a post explaining "What Superannuation is".
- It just made sense for the first time ever.
- When I am in a zoom call on 'AVCs' with financial advisors, I always felt it was some kind of magic secret numbers.

(2) in your fifth box above, you have striked through Death Benefit. I don't know why, as all public servants in PS pension schemes have a Death Benefit if they die in service.

(b) OK - so I stroked out death benefit
- well because I' was thinking "I'd be dead"
- Credit Union would cover funeral costs or straight to medical research etc and that would be that …
- My understanding was that the benefit was only of value if you had spouse or children.
(I have had joke conversations with friends in 'single' circumstances, about getting married to pass on the benefits.)

So perhaps "Death Benefit within Public service"....means there is a benefit to the 'estate' (If that is what it is called)?
So regardless, when a PS dies, a 'benefit is left' and that goes to those in the will - (another job I must do)

(3) do you check that you tax credits and SRCOP are correct? The reason I ask is that maybe some teachers are missing the flat-rate expenses tax allowance

- Yes, I add the extra flat rate expenses and health expenses. - Rent is cash in hand, so cannot add that unfortunately.
- I did notice that I would add the Flat rate expenses and then they would disappear.
When I queried Revenue, I got this response which I do not know what it means, but it does sound legit.

"Please note that your Flat Rate Expenses in 'real time'; that is during the current year will appear on your Tax Certificate as a tax credit of 20%, or €116.60. However, if you check your rate band you will see that your rate band cut off is increased by the full amount of €583. This is to ensure that you receive the full benefit of your FRE throughout the year regardless if you are paying the standard or higher rate of tax."​

​

(4) you are a member of two teachers pensions schemes, and going by what you say, this is correct.

Yes, AND No - I am on the Post 2004, with preserved benefits from the Pre 2004 - and I have no idea what that means on paper.
- I haven't found anyone who could set out the positives or negatives or any benefit yet.
- I was hoping that I might be able to get the 1.8% Child & Spouse payment back, as on the Pre 2004, you could apply and it is worth approx. €20,000 apparently. But hope fading on that.

Pre-2004 scheme = 4.5 years service
Post 2004-scheme = most of your service

Correct - I have 23.5 years Recognisable Service now (according to Revenue).
I still need to 'buy back' some years between 1996 - 2000, where I may not have paid into a pension. Part time (although full 22 hours) contracts did not pay into a pension scheme. We "signed on" every holiday period.

Does this mean that the pre-2004 scheme will pay out a (small) lump-sum at age 60, and a pension from age 60?

- No Idea - GOOD QUESTION THOUGH
- But can you get a pension and keep working..?
- …and would that mean the the POST 2004 pension would be in a shortfall - September 2006 to September 2039 (almost 65 years) would only be 33 years and I need 40 years. I think I am confusing myself again - probably a lot simpler than that.

 

[theObserver]

I had to google RPZ, so it isn't that. Rural area / unusual accommodation. With rents the way they are, no doubt landlord could get 3 times the rent. Think we are both happy with the status quo.

Perhaps they would be willing to sell the property to you. Might be worth planting the seed in their minds.