Single parent seeking advice on diversification and retirement planning

[SheilaMcSpud]

Personal details

Your age: 45
Your spouse's age: n/a
Number and age of children: Twins (11)

Income and expenditure
Annual gross income from employment or profession: 115,000
Monthly take-home pay: 4,600

Type of employment: Employee
Employer type: private company

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

Summary of Assets and Liabilities
Family home value: 400,000
Mortgage on family home: 150,000
Net equity: 250,000

Cash: 20,000
Zurich savings: 200,000
Defined Contribution pension fund: 520,000
Company shares : 800,000 (CGT is not factored into this)
Buy to Let Property value: n/a
Buy to let Mortgage: n/a
Total net assets: 1,790,000

Family home mortgage information
Lender: BOI
Interest rate: 3.25% (switched from KBC)
Type of interest rate: variable
Remaining term: 20 years
Monthly repayment: 850

Other borrowings – car loans/personal loans etc
Do you pay off your full credit card balance each month? n/a

Pension information
Value of pension fund: 520,000
I make maximum contributions of 25% of 115,000 each year.
Additional company contribution of 5%.

Other information which might be relevant
Life insurance: 4 x annual salary through work.
Have my own serious illness cover.

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

I'm a single parent with 11-year-old twins, and while I've managed well financially, I'm starting to feel uncertain about the future. I'm looking for advice on how to best manage my finances and plan for both my short-term and long-term goals. Here's a more detailed look at my situation:

• I'm experiencing burnout in my current job and yearn for a less demanding lifestyle. To be honest, I feel done with corporate life and the constant stress and pressure that comes with it. I want to take a step back and create a more balanced and fulfilling life for myself. Early retirement, ideally in my 50s, is a goal, but I need to balance this aspiration with my financial commitments. Currently, our annual expenses are approximately 50K, a figure that will likely rise as my children enter their teenage years. As the sole provider, I bear full responsibility for their expenses, including the cost of third-level education, which could be substantial, especially if they choose to live away from home. Given these factors, I'm grappling with the feasibility of early retirement. Can I realistically achieve this goal while ensuring financial security for myself and my children?
• Over the years, I've accumulated a significant amount of company stock as part of my compensation. I haven't been proactive in managing this, and now a large portion of my net worth is tied up in my employer's stock. I know I need to diversify, but I'm unsure how to go about it. How much do I get rid of and where do I invest instead?
• I'm planning to sell my current home and buy a new one. I was initially planning to get a mortgage, but now I'm wondering if it would be better to sell some of my company stock and purchase the new home outright. The estimated cost of the new house is around 600K. I'm aware that selling stock would trigger capital gains tax (CGT).

I realise this is a lot to consider, and I appreciate any guidance you can offer. Thanks so much in advance.

 

[conor_mc]

Financially, you've done superbly well - better than many couples of your age, including yours truly!

The first question I had is to consider where you live in relation to third level institutions - not to put too fine a point on it, but it's okay to tell the kids they'll be going to X or Y local places assuming you're happy with the standard of education. As much as they may want to fly the coop, at 18 they also need to understand that financial compromises are a necessity of life. If you live rural, you may not have this option though. You didn't mention location of your desired new home, but perhaps this takes college education into consideration, i.e. maybe it's closer to colleges and therefore the kids can continue to live with you? On the flip side, does that take you away from family/friends as you face into a desired change in your employment circumstances?

Second thought that struck me is about clearing down your mortgage - 850 a month is about €20k in pre-tax salary. If you want to start stepping off the corporate hamster wheel, it's an obvious place to start. On that note, have you considered whether your current employer may accommodate a step-back from your current role into something more junior? It's a less jarring change than going from €115k a year to a barista wage. It may just buy you some time to consider your options or to fulfil a financial security plan before triggering an outright career change - tbh, it may also just put you back into a more fulfilling role that you'd be happy to stay on in - it's worth considering.

Regarding your build-up of employer stock - a nice problem to have, well done. You're right to be concerned about over-exposure there. The idea of taking the CGT hit to fund a home move isn't the worst idea - it'll give you a new base of financial security (reduced employer exposure, zero mortgage=interest savings, lifetime home). What to do with the remainder? With mortgage cleared and pension maxed out, there aren't too many other tax-efficient moves you can make that I know of, other than gradually reducing it year-on-year to maximise your CGT allowances.

 

[SheilaMcSpud]

Thank you Conor, I appreciate the reply.
To be honest, it is likely that they will need to move away from home to attend university as we are quite rural and the only institution within commuting distance is small and offers limited courses. Additionally, the location of my new home is close to where I currently live, so it won't bring me any closer to other higher education institutions.

Good point re the mortgage, I plan to fully repay it which I will do as part of the house move. I have not done this previously as I was prioritising the house move decision.

No, it is not an option to reduce my responsibilities with my current employer. In fact, I may be at risk of redundancy in the next year, which is the primary reason for my current concerns.

For diversification, I am considering investing in a buy-to-let property, although I am not certain I want to be a landlord. The passive income would be appealing, however. Other options I am considering include individual stocks or ETFs.

 

[ClubMan]

Second thought that struck me is about clearing down your mortgage - 850 a month is about €20k in pre-tax salary. If you want to start stepping off the corporate hamster wheel, it's an obvious place to start.

There's an even more obvious way to do this...

Mortgage on family home: 150,000

Cash: 20,000
Zurich savings: 200,000
Company shares : 800,000 (CGT is not factored into this)

For diversification, I am considering investing in a buy-to-let property, although I am not certain I want to be a landlord.

This keeps coming up in different threads and it puzzles me why many people seem to think that buying a rental property (usually having done zero analysis of a "business plan" for how it's going to work) and thus concentrating a significant, if not majority, chunk of their net work in a single asset class/geographic region/risk profile is appropriate for their needs and preferable to alternative investment options. (At least you don't seem to have dismissed the latter as others tend to do because "I don't understand shares" etc.).

 

[misemoi]

Playing devils advocate here....why the house move, although you can well afford it? Let's say your children are 12 by the time you move. That gives 6/7 years before they are ready to move out and how likely is is that they would move back to a rural area post college? Impossible to know but will you be over housed in a short time? Would the house upgrade funds allow you to have more freedom about work? Basically what will you gain and at what opportunity cost if you move.

And on your thoughts of a BTL...have you considered whether this could serve as somewhere for your children to live in education years? Or are you targeting a different type of property?

Also on the risk of redundancy...will this have a impact on the employer share price, positive or negative? Again impossible to know but it is not cash in the bank yet and value can go up or down. Do you have a threshold at which you will sell if things are not looking good for the company?

 

[Brendan Burgess]

Company shares : 800,000 (CGT is not factored into this)

This is the big issue.
You must sell these immediately - take the CGT hit. It's a great problem to have.
Too much of your wealth is tied up in the company and your income is also tied up in it. If anything happens the company, it could be a horrible double whammy.

 

[conor_mc]

This is the big issue.
You must sell these immediately - take the CGT hit. It's a great problem to have.
Too much of your wealth is tied up in the company and your income is also tied up in it. If anything happens the company, it could be a horrible double whammy.

Agree with Brendan here. At the end of the day, the CGT hit will be offset by interest savings - 3.25% on your current 150k mortgage is about 55k, but on the larger potential mortgage of 350k it would be over €125k over a 20-year term - that offsets nearly half your pending CGT bill.

 

[conor_mc]

There's an even more obvious way to do this...


This keeps coming up in different threads and it puzzles me why many people seem to think that buying a rental property (usually having done zero analysis of a "business plan" for how it's going to work) and thus concentrating a significant, if not majority, chunk of their net work in a single asset class/geographic region/risk profile is appropriate for their needs and preferable to alternative investment options. (At least you don't seem to have dismissed the latter as others tend to do because "I don't understand shares" etc.).

Also agree with ClubMan - Irish fixation with owning rental properties runs strong but at current elevated prices and elevated rents, it rarely makes good financial sense and is most definitely not an aid to diversifying risk.

I remind people that it's not too long ago (2008) that both purchase prices and rents had an absolutely wicked crash at the same time.

 

[conor_mc]

On the question of potential redundancy, what are the chances of a decent payout from your employer? Have they a history of paying X weeks' salary per year of service, and what length of service do you have?

 

[ClubMan]

Also agree with ClubMan - Irish fixation with owning rental properties runs strong but at current elevated prices and elevated rents, it rarely makes good financial sense and is most definitely not an aid to diversifying risk.

I remind people that it's not too long ago (2008) that both purchase prices and rents had an absolutely wicked crash at the same time.

Even if that wasn't the case, putting most or all of one's net worth into a single asset class/geographic region/risk profile would be questionable.

This is especially relevant given that a key word in the original poster's thread title/post is "diversification/diversify".

 

[SheilaMcSpud]

To be honest the buy to let idea is a notion that was suggested to me by a friend, but I was very unconvinced and all your advice to avoid it from a diversification and risk POV makes sense to me.

There's an even more obvious way to do this...


This keeps coming up in different threads and it puzzles me why many people seem to think that buying a rental property (usually having done zero analysis of a "business plan" for how it's going to work) and thus concentrating a significant, if not majority, chunk of their net work in a single asset class/geographic region/risk profile is appropriate for their needs and preferable to alternative investment options. (At least you don't seem to have dismissed the latter as others tend to do because "I don't understand shares" etc.).

To be clear, is your suggestion that I use current savings to pay off the existing mortgage outright?

Playing devils advocate here....why the house move, although you can well afford it? Let's say your children are 12 by the time you move. That gives 6/7 years before they are ready to move out and how likely is is that they would move back to a rural area post college? Impossible to know but will you be over housed in a short time? Would the house upgrade funds allow you to have more freedom about work? Basically what will you gain and at what opportunity cost if you move.

And on your thoughts of a BTL...have you considered whether this could serve as somewhere for your children to live in education years? Or are you targeting a different type of property?

Also on the risk of redundancy...will this have a impact on the employer share price, positive or negative? Again impossible to know but it is not cash in the bank yet and value can go up or down. Do you have a threshold at which you will sell if things are not looking good for the company?

The house move is more for personal rather than financial reasons. We don't like where we currently live and won't be happy here in the long term.

Happy to park the BTL option for now, being a property manager/landlord isn't very appealing.

Redundancy won't have a risk on share price and my approach up to now has been to ignore the stock which has worked in my favour up to now, but I know it's not an advisable plan long term.

This is the big issue.
You must sell these immediately - take the CGT hit. It's a great problem to have.
Too much of your wealth is tied up in the company and your income is also tied up in it. If anything happens the company, it could be a horrible double whammy.

Yes I'm very uncomfortable with my current position and plan to rectify that this year.

On the question of potential redundancy, what are the chances of a decent payout from your employer? Have they a history of paying X weeks' salary per year of service, and what length of service do you have?

I have close to 10 years service, and I could get 4 weeks for every year. But I sometimes feel like I might not even last long enough to get it if I'm not impacted in the coming months.

If I move to a new house and sell the existing house, and cover all costs in full up front leaving myself mortgage free, what would be a recommended investment approach for the remaining funds? If I leave my current job, I don't think I'll end up in something similar and imagine myself in a lower pressured role earning maybe even 50% of what I currently earn. I know this might not make sense, but I really feel done with the hamster wheel. This would mean that I couldn't put as much money into my pension of course. And I'd likely have to keep working for longer than I originally had hoped. I'm finding it hard to get a very realistic view of my position.

 

[Brendan Burgess]

Yes I'm very uncomfortable with my current position and plan to rectify that this year.

Sheila

You should rectify this today or tomorrow - not "this year".

Sell your shares.

It's hard to sell shares in a good company which have done so well but you must do it.

Put money aside for the CGT

And then address the other issues.

Brendan

 

[SheilaMcSpud]

Sheila

You should rectify this today or tomorrow - not "this year".

Sell your shares.

It's hard to sell shares in a good company which have done so well but you must do it.

Put money aside for the CGT

And then address the other issues.

Brendan

Unfortunately we're restricted in when we can sell, Brendan. We can only do so during specific windows and I will need to hang tight until then. But I absolutely plan to do it.

 

[conor_mc]

To be honest the buy to let idea is a notion that was suggested to me by a friend, but I was very unconvinced and all your advice to avoid it from a diversification and risk POV makes sense to me.


To be clear, is your suggestion that I use current savings to pay off the existing mortgage outright?


The house move is more for personal rather than financial reasons. We don't like where we currently live and won't be happy here in the long term.

Happy to park the BTL option for now, being a property manager/landlord isn't very appealing.

Redundancy won't have a risk on share price and my approach up to now has been to ignore the stock which has worked in my favour up to now, but I know it's not an advisable plan long term.


Yes I'm very uncomfortable with my current position and plan to rectify that this year.



I have close to 10 years service, and I could get 4 weeks for every year. But I sometimes feel like I might not even last long enough to get it if I'm not impacted in the coming months.

If I move to a new house and sell the existing house, and cover all costs in full up front leaving myself mortgage free, what would be a recommended investment approach for the remaining funds? If I leave my current job, I don't think I'll end up in something similar and imagine myself in a lower pressured role earning maybe even 50% of what I currently earn. I know this might not make sense, but I really feel done with the hamster wheel. This would mean that I couldn't put as much money into my pension of course. And I'd likely have to keep working for longer than I originally had hoped. I'm finding it hard to get a very realistic view of my position.

Even after purchasing your new home you'll have the guts of 400k left over, plus your 520k pension. Given your current expenditure for your family is circa 50k, and you can knock 10k off that annual bill after clearing your 850pm mortgage, you can probably rest easy that you already have sufficient resources for your retirement.

Which leaves you just having to figure out your ongoing costs in the intervening period between now and your retirement/your kids' eventual financial independence (including 2x college costs), and then deciding what level of income you will need in order to meet those needs.

 

[Duke of Marmalade]

Sheila,
800k in share remuneration over 10 years is some going, more than your net salary. Do you mind sharing how much of this 800k is capital gains. Brendan is right. I worked in a bank and there were some very traumatic experiences when the crash came. One particular sting was the income tax that was due on shares that were now worthless!! Are you happy that you have the income tax situation well covered - were these shares part of a tax free profit sharing scheme?
Brendan says sell immediately, I presume the shares are fairly easily sold.

 

[SheilaMcSpud]

The income tax was paid on vesting so that is all sorted. When all are sold, CGT will likely be around the 200K mark and the shares are easily sold.

I previously worked abroad where my total compensation was a lot higher, including stock, this is why the stock amount looks disproportionate to my current salary.

 

[Duke of Marmalade]

The income tax was paid on vesting so that is all sorted. When all are sold, CGT will likely be around the 200K mark and the shares are easily sold.

I previously worked abroad where my total compensation was a lot higher, including stock, this is why the stock amount looks disproportionate to my current salary.

Sheila
More curiosity at this stage as I agree with the others. But do you mean CGT of 200k or capital gains of 200k. If its CGT your company has sure been successful.

 

[Dr Strangelove]

Sell your shares.

I agree but I’d hold on to 5% or so.

If your company goes for the stratosphere you won’t feel like you’ve missed out.

 

[SheilaMcSpud]

Sheila
More curiosity at this stage as I agree with the others. But do you mean CGT of 200k or capital gains of 200k. If its CGT your company has sure been successful.

Yes the company has been successful. I've just gone through the numbers for sure, and the capital gain is ~450K and I will owe CGT of ~150K if I sell everything. Apologies, the 200K number was an overestimate.

 

[Duke of Marmalade]

Yes the company has been successful. I've just gone through the numbers for sure, and the capital gain is ~450K and I will owe CGT of ~150K if I sell everything. Apologies, the 200K number was an overestimate.

Not too much of an overestimate. It's a lot of tax to pay. Now I'll just throw it in though not really relevant in your situation, but CGT is not payable on death, hopefully a long way off for you. So the advice to sell out certainly dovetails with your request for diversification. But I think I agree with @Dr Strangelove and would hold on to about 100k, just in case. Maybe you have a sense of whether your company could go even further.