Steak & wine pension- retire at 55?

[Dadof2]

Age: 39
Spouse age: 39

Annual gross income from employment or profession: €52,000
Annual gross income of spouse: €77,000
Monthly take-home pay: c.€6,750. Children’s allowance of €280 per mth not included.
Type of employment: Both Private sector.

In general are you?: Saving
We started saving €3,333 per mth from Jul’20 to try to save €40,000 p.a towards a house extension being built at the end of the summer of 2021. Already have a chunky mortgage and don’t want another huge debt so trying to save as much as possible towards the extension. Aim was to save €50,000 and borrow €100,000 but due to Covid, can't see the extension being built until Q3-Q4 maybe even 2022; flip side is we will save more/borrow less.

Rough estimate of value of home: €380,000
Amount outstanding on your mortgage: €360,000 with 27years left. Bought in 2008. In negative equity for majority of the mortgage life so far. The joys
What interest rate are you paying? 1.5% tracker which is about €1,400 per mth

Other borrowings - car loans/personal loans etc: No other debts.

Do you pay off your full credit card balance each month? Yes, balance is nil.

Savings and investments: €23,333 in bank savings account towards the house extension and €38,000 in Credit Union account which was accrued mostly from children’s allowance. Want to keep about €25,000 of Credit Union savings as an Emergency Fund to cover 6-9 mths expenses. Know that 3-6 mths is sufficient but I have been made redundant before and although we weren’t on the breadline it was still tough and I don’t want to experience that again if I can avoid it. Didn’t have a buffer back then.

Do you have a pension scheme? Yes, me a DC scheme, currently paying 10% of my salary each year, company pays 15% (I was a late starter and trying to catch up) pot is worth €105,000. Wife also has a DC scheme but originally was in a DB scheme. Not sure of the value of her DB scheme but her DC pension is worth about €75,000. She pays 6% and her company pays 10%

Do you own any investment or other property? No

Ages of children: 9 and 7. Childcare costs €0 since Covid/Mar ‘20 and likely to stay like that as I can’t see myself going back to the office again

Life insurance: We both have company cover of 4 times our salaries. We also took out separate life cover of c.€600,000 (not exactly sure but think it's this amount) about 4yrs ago. That costs €103pm. One of my parents passed away before 50 (I was a teenager at the time) and having extra cover gives us peace of mind I suppose

What specific question do you have or what issues are of concern?
It’s taken a long time to get to where we are now and I feel like we have an opportunity to make big differences to our futures with some proper planning/guidance.
We do not want to have a mortgage when we’re in our 60’s. If I could I’d love to be debt free by my mid 50’s or even early 50’s. We’d both love to retire early- aiming for about 55/56 but with a decent pension....what’s a decent pension?! Not living on beans and rice more like steaks and wine please! €35,000 - €40,000 a year (incl. state pension if it’s still around)

We want to save €40,000 - €60,000 and borrow €90,000 - €110,000 for the extension. We have been able to save €3,333 per mth so I’d like to have loan repayments of the new extension loan being similar so it’s cleared asap. Once that’s cleared in full we can max out our pension contributions and overpay our mortgage

Is my approach the best way for us to achieve our goals?
Maxing out the pensions now and benefitting from compound interest for longer makes sense but we’d rather clear our existing and proposed debts first but I’d welcome any suggestions at all.

We didn’t have much income between us when we started out but slowly over the years it’s grown. Redundancy led me to upskilling and we both studied for extra qualifications to boost career prospects along the way but everyday life- having a wedding, 2 kids with associated childcare costs and commuting costs also hit us in the pocket- we both endured the magic of M50 journeys for years and we definitely don’t miss it!!! Plus we took out a 40yr mortgage..... we’re happy where we live and don't plan on moving so can’t complain too much. As case of needs must at the time.

We’ve set goals and achieved them as we went along...small goals like... getting health insurance, increasing pension contributions, getting life cover, writing a will, building up an emergency fund etc...(probably seems trivial to most people but it took ages for us to accomplish same). We’ve also had good holidays over the years and both have cars- all were paid for from savings so optimistic we’ll hit this target but can we be more efficient?

Sorry for the long winded saga. Appreciate your time and advice. Thanks
AAM is a fantastic forum/source- only wish I discovered it about 15-20 years ago!!!

 

[michaelm]

If you're going to put €150k into a house extension then retiring at 55 seems optimistic. If it's a standard 3/4 bed house and you've only two kids then do you really need to plough money into it?.

I'd max out pensions before increasing mortgage payments, ensuring that a cash safety net is in place. Pick up the Money Doctor 2021 book (€12.99 in Easons), it'll surely save you a few quid.

 

[Dadof2]

If you're going to put €150k into a house extension then retiring at 55 seems optimistic. If it's a standard 3/4 bed house and you've only two kids then do you really need to plough money into it?. I'd max out pensions before increasing mortgage payments, ensuring that a cash safety net is in place. Pick up the Money Doctor 2021 book (€12.99 in Easons), it'll surely save you a few quid.

Our son has a box room for his bedroom and it really is tiny. Our living area downstairs could be improved and more space will definitely help. Due to Covid, we are both now working from home and home schooling 2 kids with the 4 of us sitting round the kitchen table....It's not quite The Waltons nor is it rainbows and unicorns and peace and harmony all the time but it's just not practical on a long term basis. If I do end up working from home on an on-going permanent basis I'll need a proper home office of some sort. Obviously hoping kids go back to school asap!! Our preference is for building works to be done while the kids are still young and in primary school instead of disrupting their lives later.

Totally understand prioritising the pensions first but really want to clear the mortgage asap. While interest rates are so low, overpaying same will offset any interest rate increases down the road...although there's been no interest rate increases in yonks. My thinking is.... I'd rather have a mortgage balance of €200,000 if rates went up instead of €300,000

Thanks for the reply and the book recommendation

 

[Sarenco]

Given the limited equity in your house, I suspect you won't be able to get a mortgage top up of the desired amount.

So that leaves you with a more expensive bank or credit union loan to fund the extension and you might struggle to borrow as much as €100k on an unsecured basis.

 

[Dadof2]

Hi Sarenco, that was another challenge I was facing up to...didn't want to post about that on this forum. Resigned myself to the fact that another mortgage was not an option based on the tiny equity I have so it would have to be a bank loan/CU loan...if I have a track record of saving €3,333 per mth would a Bank/CU not see that as repayment capacity of €3,333 per mth so in theory a loan of €100,000 @ interest rate of I'm guessing here...maybe 7% would be cleared in 3-4yrs?

 

[michaelm]

I too doubt you'll get the loan you're after. You could probably convert your attic for use as an office. Less than €20k and only about 2 weeks of disruption.

 

[Bronte]

How much would a house suitable to your current needs cost you?

Saving 20 + 25 + 38 = 83K
House 380K.
Extension 150K, (from new savings of 40K and borrowings of 110)
Total 613K. .

How much will the house be worth with an extension. And I'd take a good guess the 150K will be 200K by the time you are finished. Why stay in Dublin at all if WFH.

 

[Dadof2]

I too doubt you'll get the loan you're after. You could probably convert your attic for use as an office. Less than €20k and only about 2 weeks of disruption.

unfortunately the attic can’t be converted or would cost too much money due to pitch of roof being too low.
Apologies if this sounds silly but could we get a secured loan? I’m thinking no...

 

[Coldwarrior]

I too doubt you'll get the loan you're after. You could probably convert your attic for use as an office. Less than €20k and only about 2 weeks of disruption.

If your attic is suitable for conversion, many aren't, at least not for 20k.

 

[Coldwarrior]

How much will the house be worth with an extension.

This is an important question, it'd determine if you can get a mortgage top up. The value generally doesn't increase by the full amount of the cost of the extension.

Apologies if this sounds silly but could we get a secured loan? I’m thinking no...

If your LTV was 80% or under after the extension then possibly, though from the numbers given 110k of a top up is probably out of reach in the next couple of years.

If your house was valued at say 480k after the extension, and you got an 110k top up, and allowing for say 20k more capital payments on the mortgage over the next couple of years, your LTV would be:

Mortgage: 360 - 20 + 110 = 450
House value: 480
LTV: 93.75%

So you can either wait a few more years to save more and pay down more of the mortgage, thus needing less of a top up, or try to get an unsecured loan. Or sell and trade up, this might actually make most sense (financially).

 

[Dadof2]

How much would a house suitable to your current needs cost you?

Saving 20 + 25 + 38 = 83K
House 380K.
Extension 150K, (from new savings of 40K and borrowings of 110)
Total 613K. .

How much will the house be worth with an extension. And I'd take a good guess the 150K will be 200K by the time you are finished. Why stay in Dublin at all if WFH.

Hi Bronte
Thanks for the reply...
Not sure I’m following your figures?
Mortgage outstanding is €360,000 + extension of €150,000= €510,000 which I’m happy to pay overall. (Wouldn’t say happy but willing!) We need an extension to satisfy our needs. Original topic I posted was what strategy would suit me best to ultimately retire early.

Appreciate it’s significant debt but I want to tackle it and clear it ASAP. Looking at all of our finances not just our debts...pensions other possible investing etc...Obviously if I didn’t live in Dublin I’d have less costs etc however reality is I do live here and have done all my life.

We’re both from Dublin and both our families live within 5 mins of our home. Kids are in good school and although I’m more than likely working from home on a permanent basis, my wife will be going back to the office

We have no desire to move and I’m not sure how much the house will be worth after the extension is built.

 

[_OkGo_]

I hate to burst your bubble but the numbers just don't stack up for me. Your take home is €7k including Child Benefit and you have savings and mortgage payments of ~€4700. So a family of 4 are living on €2300/mth or €27k/yr? Maybe during lockdown but that will change again when things eventually get back to normal.

Your savings figure is significantly inflated because of lockdown. You may have made genuine savings in terms of childcare and commuting costs but there are other areas such as holidays, socializing, clothing, kids activities that will come back and will be substantial. Even things like car upgrades, are you budgeting for these in the next 15 years? Your real savings figure that you can sustain (when normal life resumes) may be closer to €2k per month.

As for the extension, ignoring the fact that you won't get it as a mortgage top up, from your own perspective you should still view it as part of your mortgage. You would have €460k debt associated with your home which would put you at an LTI of just over 3.5. Not where you should be if you have ambitions of retiring early.

As it stands, you have €20k equity in your home (even less if you actually sold it) and you have €61k in savings, most of which you have saved in the past 12 months because of lockdown. To put it in perspective, if you started the extension tomorrow, you would have €10k in savings and €460k in property related debt. You also want to fund a 10 year gap to state pension (€400k), create a retirement pot capable of 35-40k from 66 and will likely have 3rd level education costs in the next few years also. All of this would cost well in excess of €1m and you want to do it in 15 years.

If you are more realistic about your priorities, it will be either the extension now or some level of early retirement (early 60's), not both. Ask yourself the following:

• Could you buy a suitable property for €400k? Your tracker is good but not the best. Sacrificing the tracker for a slightly more expensive property would be a better solution for you. You can get interest rates at less than 2.5% and if you continue to aggressively overpay, you can target the Avant 1.95% in a few years
• Was your home suitable before WFH and homeschooling? Will the extension actually solve the problem or could you install a purpose built garden office for a fraction of the price? The standard of these has improved significantly in recent years and will have no disruption to your lives
• How do you plan to fund the gap between early retirement and pension age?
• How do expect to have a €40k pension without maxing pension contributions now?
• How real & sustainable is the €3,333 monthly savings? All your plans are invalid if you can't keep this up

 

[Bronte]

My mistake on the figures. You have 38K and 23K (which is your fall back). But the 38K that's close to your 40K, are you going to try and save another 40K?

Would getting a Seomra in the back garden as office space work? You might be able to do it with your current savings and have four people in the kitchen must be horredous.

 

[Dadof2]

This is an important question, it'd determine if you can get a mortgage top up. The value generally doesn't increase by the full amount of the cost of the extension.


If your LTV was 80% or under after the extension then possibly, though from the numbers given 110k of a top up is probably out of reach in the next couple of years.

If your house was valued at say 480k after the extension, and you got an 110k top up, and allowing for say 20k more capital payments on the mortgage over the next couple of years, your LTV would be:

Mortgage: 360 - 20 + 110 = 450
House value: 480
LTV: 93.75%

ah right ok I understand now...
I think a mortgage isn’t really an option for us based on those LTV projections.... and wasn’t relying on one originally.

A more expensive bank/CU loan is the likely outcome here.....if we can get approved for one....which is actually not likely judging by the reactions

 

[Bronte]

A more expensive bank/CU loan is the likely outcome here.....if we can get approved for one....which is actually not likely judging by the reactions

What interest rate would you be paying?

How much would your house rent for? How much rent would you have to pay to live in a house suitable for your needs.

 

[Dadof2]

Sorry there is a time delay I have to wait before replying... I’m new to this!

Bronte- I don’t know what the interest rate would be....I’m guessing 7% if not more?

We wanted an extension before Covid hit so it was always on the horizon. A home office became an addition. A bigger bedroom and more living space downstairs is what’s really needed.

Don’t really want to go down the renting option either. Wasn’t clear on the savings. Sorry! We have 38k in the CU of which 25k will be used as an Emergency Fund. For the extension we wanted to save 50k and borrow 100k. We have 23k of the 50k saved in our Bank acc. Original plan was to save another 17k between now and July and use surplus from CU too. By Jul 21 total savings would be 78k-25k EF = 53k

OkGo... thanks for your input. Food for thought for sure

Should have provided more details regarding income but very hard to keep points/info succinct! Income was based on basics salaries only. I do get overtime which I didn’t include as it’s not every month. It’s about 5k net extra per yr. Not guaranteed so excluded it. During Covid overtime has been higher than normal but savings so far have been based on basic salaries only. My wife has gotten a bonus I’d say every 3-4 yrs. Again not guaranteed so not included in figures. In the past it was usually used as a top-up of savings towards buying a car

As a family we probably have less than average expenses compared to other families. We’re good savers. Went on a once in a lifetime holiday before Covid and saved 20k in 12 mths when we did have childcare/commute costs. Those costs are gone now and savings have increased and will increase going forward. We have 2 cars and go on holidays and all have been funded from our own savings. Will probably get rid of 1 car now or in the near future.

To retire on a joint pension of 35k-40kpa I think would be more than 1M+.... maybe 1.2M? I’m sure there’s more qualified professionals that could expand on same? We currently have c.200k in pension pots (wife had a DB scheme for about 12yrs before switching to DC scheme for the last 7yrs so pots could be bigger?) Keeping it at 200k leaves us 15yrs to accrue 800k-1M...does sound crazy seeing it in writing!

My thoughts were:
1) to get the extension built, borrow the 100k and repay it within 3-4 yrs. We’re saving 3333pm and if we apply same repayments or less, maybe 3k per mth towards the extension loan it’ll be cleared.
2) Then use the 3k per mth towards overpaying the mortgage. Agree the 1.5% tracker isn’t the best but it’s what we have. Overpaying the mortgage at that rate will clear the mortgage by the time we’re 50 maybe? I haven’t done the figures and wouldn’t know how to...maybe use a mortgage overpayment calculator on CPCC website? You probably know more than me. Or we could split it and use % towards overpaying the mortgage and % towards maxing out pensions.
3) As we get older our earnings would increase so we’d hopefully be in a position to max out our pensions and have surplus to set up investments to find the gap between early retirement age and state pension
4) We’ve never touched the children’s allowance and will hopefully receive same for another 9-11yrs (kids are 9 & 7 now) and that will be saved in the CU which should cover most educational costs... touch wood. Alternative here would be to invest the children’s allowance in Equities or something like that? Don’t know enough about it I’m afraid
5) We don’t plan on selling or moving or renting. We like our house albeit it needs to be bigger and we like our area and proximity to families/schools/amenities/sports/music events etc... will we ever see a match or a concert again? The LTI ration will be high but it’ll come down quick enough
6) At age 50 my employer will increase pensions contributions to 17% and I’ll put in max of 30% then which will be 47% of my salary then. Wife will be similar but slightly less.

Overall I’m thinking the sooner we clear our debts the more surplus cash we can invest into shares/stocks/AVCs to build up a decent pension pot at normal retirement age and a “mind the gap pension” from early retirement age of mid 50’s to normal retirement age of 68

Other posters here advised maxing out the pensions over overpaying the mortgage and I can understand same so a hybrid approach could be more appropriate

55 is the target but it could be 56 or 57.

I’m willing to give it a lash and if it doesn’t work out hopefully we’re not a million miles away from hitting our target!

Really do appreciate the replies.
Thanks for your time

 

[_OkGo_]

Use Karl's Mortgage calculator to model overpayments.

I see where you are coming from but I don't think it is sustainable or achievable. If you borrow for the extension and then overpay it and your mortgage with the €3.3k/m, it will still take you 10-12 years to clear all your debt. So in your early fifties, you will have no savings on hand, a modest pension pot from not increasing your contributions in your 40's and likely to have 2 kids in 3rd level.

You should prioritize your pension first. You will be able to contribute 25% this year/next year when you are 40 so if you did this:

• You: €52k - 15% extra - €7.8k - Net cost = €4.68k
• Spouse: €77k - 19% extra - €14.6k - Net cost = €8.76k
• Monthly savings would drop from €3,333 to ~ €2,200

I think you should view your affordability of the extension based on full pension contributions. The €2.2k savings are still inflated from lockdown so can you really afford to extend and clear your mortgage with €1.2-1.5k of extra cash, especially at 7-8% interest rates? Or at least increase both pension contributions to 15-20% and adjust the figures above. An approach like this might get you to some level of semi-retirement in your early 60's

 

[michaelm]

It all looks a bit overstretched and overambitious to me. There is little redundancy for the inevitable, unforeseeable, twists and turns. Maybe you could hope to retire by 60, although the planned extension will likely add years to that. Good luck with it anyway.

 

[Steven Barrett]

A home office became an addition.

This is slightly off on a tangent but is relevant. The OP can't be the only one who is going to WFH going forward but doesn't have a suitable home place to work in their home. Why should it be up to the employee to foot the bill of putting a home office in their house? An employer with no overheads of rent, rates, electricity etc would be saving an absolute fortune each year but employees would not have a better work environment as their homes are not designed for people to be working out of. Especially for young families, who simply do not have the room.

On retirement, you need to be extremely focused on reaching the goal of having enough money to retire at 55. Very few people manage it and with the cost of an extension to add to your debt, it is unrealistic to aim for that early an age without it having an impact on the way you live currently. Keep saving for your pension but I wouldn't be focused on retiring at 55 as it is unlikely you will achieve that target. Your kids are young enough too, they will get more expensive!

Focus on the extension first.

Steven
www.bluewaterfp.ie

 

[niceoneted]

What about an attic conversion to give your son a bigger room and then convert the box room to an office. There are great ways to create storage and rearrange a house to make better space. sometimes you have to think outside the box. This includes creating good outside space too. this would take pressure off adding to your current mortgage and lead to you being able to retire early.