34, married, kids, one income, €180k to invest

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presidenttttt

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I did one of these 3 years ago, and got some great input - even conflicting advice was useful for debate.

I have since engaged in a huge career change, moved house, gained 3 kids, and wife salary has gone from 100K+ to zero.

Age: 34
Spouse’s/Partner's age: 34

Annual gross income from employment or profession: €115,000 fixed + 10-20K bonus, call it 125K gross.
Annual gross income of spouse: Zero - perhaps the upcoming Irish referendum on how we see "women in the home" should be about whether society supports to choice to raise kids versus sticking them in an expensive creche- excuse me, will leave that for another thread.

Monthly take-home pay: €6000
Type of employment: Permanent

In general are you: Saving, maybe around 1000-2000e. My mentality normally means I know this number to within €100, but outgoings have been erratic given house moves, kids, family income volatility so not clear what the "real" average is right now.

Rough estimate of value of home: €650,000
Amount outstanding on your mortgage: €250,000, 28 years left
What interest rate are you paying? 2.4%, fixed, renew in 18 months

Other borrowings: None

Do you pay off your full credit card balance each month? Yes, always.
If not, what is the balance on your credit card? N/A

Savings and investments: 180K cash

Do you have a pension scheme? Yes. Company pays in 12% of basic. Family combined pension pot (previous employments included) ~250K.

Do you own any investment or other property? No

Ages of children: Three under 4, and no plans for more!!!!

Life insurance: 5x salary through employer which can be topped up, and there will be some other life insurance linked to mortgage.

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

Do I pay off my mortgage, invest in stocks, or deeply explore buying or starting a business?

Cash pile is a result of selling a property - a legacy of a period working abroad. It pains me not to have that cash working for me in this high inflation environment so I feel I need to "do something fast".

My parents mindset was always to pay off the mortgage - I agree it is the safe bet. I am not dead against doing this. I do have a bigger appetite for risk; I look at the maths and understand that my mortgage is the cheapest leverage/money I will ever get, and our loan to value is comfortable even if property tanks my sense is the family home should be safe.

I am in professional services, I enjoy it a a lot. There is some potentially very big pay jumps in the next few years. However, the demands are high, such that the reality is most people leave - for less money but a more sustainable work-life balance. I am ambitious but I also do not wish to be an absent father - so cross roads will arise at some point on, so it is hard to have clarity over longer-term income. While I have a risk appetite I also take a conservative approach to planning - and the conservative outlook is to assume salary might even decline slightly.

The idea of owning my own business is appealing - very interested in optimising "standard/old" businesses instead of the current obsession people have with tech and building the next billion dollar company. Like half the country I spend my far too much time on daft.ie (property websites), and understand it on a deeper level than most - but see little opportunity at the moment to dive in here with any of the "usual models" (love to chat to any of you with success in this area). But ultimately, right now, I have no strong conviction in a single path for my own business.

Stick it all in equity, diverse fund.....seems a "safe option" too. Not dead against this either. However, along with the appeal of running my own business, I like to take responsibility/back myself, and I clearly have no control over the outcome of an investment in an index fund....

Edit to add, I understand at my age 20% of salary can go into pension per annum, perhaps I can retrospectively pay into 2023, and plan to pay extra in 2024 too, but this would only be a partial solution.
 
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I think you should maximise your tax-relieved pension contributions for 2023 and then going forward. Make sure your pension is mainly or wholly in a global equity fund.

I would then pay down your mortgage, leaving a reasonable (perhaps €25k) cash reserve. Your mortgage rate is low at the moment but is bound to jump once you roll off the current fixed-rate.

Keep it simple.
 
Should I hold some concern around being asset rich but cash poor though? How do I unwind that if loading pension and paying off mortgage rapidly - in the context of potentially not being in a "job for life" setup?
 
presidenttttt said:
Do I pay off my mortgage, invest in stocks, or deeply explore buying or starting a business?
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Paying off your mortgage is the default option.

Lots of people talk about starting a business and, of course, some do.

How likely are you to do that? When you tell your spouse that you are thinking of quitting a job paying €125k a year to open a corner shop, how is she likely to respond?

With 3 young kids, starting a business would be difficult.

If you have a definite plan that might be implemented within 5 years, then don't pay down your mortgage. If it's just an idea and probably 5 years away, then pay down your mortgage.
 
If you decide not to pay down your mortgage, then I think you should buy a portfolio of stocks. The upside is greater than the downside and you can handle the downside.

But as you get close to starting a business, then switch to cash.

Brendan
 
Is there scope for your wife to return to work in the medium term? Will her skills stay fresh, are there part time opportunities in her field? The early childhood years are so hard to manage but in a lot of cases they do get easier....3 under 4 is hard work but having age gaps like this means they will all be going to pre school, school etc at the same time. Could you consider running a business during the school years and have a steady income from her work at that point? So maybe have a few scenarios built into the various future options for your family income.
 
misemoi said:
Is there scope for your wife to return to work in the medium term?
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There is absolutely no need for your wife to have an income in the medium term.

presidenttttt said:
Annual gross income from employment or profession: €115,000 fixed + 10-20K bonus, call it 125K gross.
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presidenttttt said:
Savings and investments: 180K cash
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presidenttttt said:
Rough estimate of value of home: €650,000
Amount outstanding on your mortgage: €250,000, 28 years left
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As you are both aged 34, there is no rush on setting up a business or returning to paid employment.

Make your life choices first and don't be driven by financial considerations.
 
  1. Keep a cash reserve
  2. Contribute to your pension on a monthly basis instead of saving so much cash.
  3. Insure your wife's life & top up your own cover
  4. If you don't have income protection through work, get it.
  5. Invest some for the future when you need to cover school/ 3rd level fees and accommodation.
  6. Reduce your mortgage


Steven
www.bluewaterfp.ie
 
You are in a great position.

With 3 children under 4 if your wife was to return to work you'd be looking at creche fees not far off 3k per month, so she'd likely need an equivalent salary to yours to make it worth while. Without even considering the additional stress of drop offs / collections that can add undue stress to daily life.

The biggest risk you have is the single income, so perhaps you need to have a rainy day fund that covers outgoings for a few months until you find new work, e.g. 6 months which is ~30k.

You are well ahead of most on terms of mortgage paydown for your age. If you pay it off now with the savings it will just give you extra monthly cash that you will likely invest anyway.
 
DublinHead54 said:
You are well ahead of most on terms of mortgage paydown for your age. If you pay it off now with the savings it will just give you extra monthly cash that you will likely invest anyway.
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The OP could, and should, be getting tax-relief on personal pension contributions of up to €23k per annum.

His 50-year old future self will be very grateful if he makes a couple of very simple moves now -

1. Maximise tax-relieved pension contributions for 2023 and for every year going forward;

2. Use any after-tax savings to pay down the mortgage ahead of schedule, while keeping a reasonable cash reserve on hand;

3. Make sure that suitable life and income protection policies are in place while he is the sole earner.

Simples!
 
Sarenco said:
The OP could, and should, be getting tax-relief on personal pension contributions of up to €23k per annum.

His 50-year old future self will be very grateful if he makes a couple of very simple moves now -

1. Maximise tax-relieved pension contributions for 2023 and for every year going forward;

2. Use any after-tax savings to pay down the mortgage ahead of schedule, while keeping a reasonable cash reserve on hand;

3. Make sure that suitable life and income protection policies are in place while he is the sole earner.

Simples!
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Agree on point 1. It looks like based on monthly savings and annual bonus, the OP could achieve the personal pension contributions almost entirely without touching the lump sum.

If Op clears mortgage he is going to be in a position of having x amount extra per month which overtime will build up outside the pension wrapper. So it is either invest the 180k today or invest the additional monthly cashflow after paying off the mortgage over time. You essentially arrive in the same place.

There is an opportunity cost here, paying off the mortgage removes the interest expense. However you lock the funds in essentially a dead asset that can depreciate, i.e. you wouldn't advise to put all 180k into one stock. The opportunity of investing is generating outsize returns over the interest saved.

In the op's situation I would likely do a mixture of the following
  1. Max pension contributions tax efficiently using bonus, monthly savings
  2. Target to Mortgage free by 50 which requires roughly 250 overpayment per month if 50% of the lump sum is used to pay off.
  3. Lump sum usage
    1. Use 50% to pay off lump sum
    2. Use 15% as rainy day fund
    3. Invest 35%
 
DublinHead54 said:
If Op clears mortgage he is going to be in a position of having x amount extra per month which overtime will build up outside the pension wrapper.
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The OP has told us he is saving €1-2,000 per month but is not making any personal pension contributions.

Those contributions could be as much as €23k pa at the moment and nearly €29k pa when he hits 40.

Building up cash savings without maximising tax-relieved pension contributions is just bad financial planning.

If the OP pays down his mortgage (he doesn’t have enough to pay it off entirely), that will free up the necessary cashflow to maximise his pension contributions.

I agree that it makes sense to maintain a reasonable cash reserve. I would suggest that €25k should be sufficient and I certainly wouldn’t hold more than €50k in cash while carrying a mortgage.

Investing after-tax money doesn’t make much sense to me before (a) maximising tax-relieved pension contributions; and (b) paying off all debts, including mortgages.
 
Sarenco said:
The OP has told us he is saving €1-2,000 per month but is not making any personal pension contributions.

Those contributions could be as much as €23k pa at the moment and nearly €29k pa when he hits 40.

Building up cash savings without maximising tax-relieved pension contributions is just bad financial planning.

If the OP pays down his mortgage (he doesn’t have enough to pay it off entirely), that will free up the necessary cashflow to maximise his pension contributions.

I agree that it makes sense to maintain a reasonable cash reserve. I would suggest that €25k should be sufficient and I certainly wouldn’t hold more than €50k in cash while carrying a mortgage.

Investing after-tax money doesn’t make much sense to me before (a) maximising tax-relieved pension contributions; and (b) paying off all debts, including mortgages.
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I think you misunderstood my point. For clarity, I said the op should use the 1-2k monthly savings + annual bonus as AVCs up to the 23k limit. This should costs the OP ~1.1k per month. I don't believe the OP needs to pay down his mortgage to free up cashflow to make pension contributions on a go forward annual basis.

On that basis whether he pays down the mortgage today or not he will end up in the same position of having excess cashflow that can't be invested tax efficiently via a pension.

The question becomes is it better to pay down the mortgage now and let the excess cash build up again or is it better to invest the money today.
 
So, from the lump sum -

1. €23k pension contribution for 2023, keeping a high exposure to equities;
2. €27k cash reserve; and
3. €130k overpayment on mortgage.

Then from income going forward, €23k pa into pension, rising to nearly €29k at 40.

Any after-tax savings can then be thrown at the remaining mortgage balance.
 
DublinHead54 said:
The question becomes is it better to pay down the mortgage now and let the excess cash build up again or is it better to invest the money today.
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But paying down the mortgage is a form of investment!

The return is equivalent to the average weighted rate over the remaining mortgage term.

I don’t think the OP will build up large cash savings if he maximises his pension contributions going forward. But if he does, just throw the excess cash at the mortgage until it’s gone.

There’s no need to over complicate things.
 
Sarenco said:
But paying down the mortgage is a form of investment!

The return is equivalent to the average weighted rate over the initial mortgage term.

I don’t think the OP will build up large cash savings if he maximises his pension contributions going forward. But if he does, just throw the excess cash at the mortgage until it’s gone.
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Yes hence why I said.

There is an opportunity cost here, paying off the mortgage removes the interest expense. However you lock the funds in essentially a dead asset that can depreciate, i.e. you wouldn't advise to put all 180k into one stock. The opportunity of investing is generating outsize returns over the interest saved.

Ultimately once the mortgage is cleared he has an extra ~1k free cashflow a year which over the next 20 years will build back up to the lump sum he has today. Hence why I said you end up in the same place.
 
Potentially you are in a position to be mortgage free well before you are 40 which is a great position to be in and then, as other posters have said, you'll have the opportunity to invest those mortgage payments in something else. Note I'd recommend keeping 10k back for the trip to Disneyland/Legoland or whatever the holiday of a lifetime is once the smallies are old enough to really appreciate it!.

I know a lot of people have suggested maximising your pension but given your age, you are likely going to need to consider funding University before you are 50 so that may be the initial goal to aim at.
 
Thanks all, all good insights! Had not thought of insuring my wife (there must be a joke there somewhere)...but this does seem a logical step that was not on radar at all. Carrying a few months cash (in a half decent accessible savings account) also seems like a good non-negotiable in a single income house. Thereafter, enjoying reading the pros and cons of paying off mortgage v other options.
 
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