Couple with 2 kids, advice needed on pensions, savings and Life Insurance

Age: 33

Spouse’s age: 33


My Income: 64,000

Spouse's income: 18,000


Take-home pay: Approx €5k between us


Type of employment – Both private sector, spouse is part-time and doesn’t work summers.


Spending or Saving?

We are saving, having been just breaking even for years.

Our current budget for 2019 (I track what we spend and account for every penny) shows us saving €15K this year if we stick to the plan.


Value of home: €270,000

Amount outstanding on your mortgage: €108,000

What interest rate are you paying? 3.37 (EBS). 31 years left on mortgage.


Other borrowings – PCP at 0% interest – paying €290 per month, with 2.5 years remaining. €9k is the settlement figure at the end of the term.


Do you pay off your full credit card balance each month? Yes



Savings and investments:

€5,000 in credit union savings


Do you have a pension scheme?

No.


Do you own any investment or other property?

No.


Ages of children:

2 and 0


Life insurance:

€115,000 dual-life policy with Irish life (against the mortgage)

Work pay for an income protection scheme (2/3 of salary covered) and a death-in-service policy (4 x income). Which are nice to have, but I’m aware they could stop paying these at any time.



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


1. Our Mortgage is at 3.37%, which I know is too high. We are in the process of applying to switch our mortgage and at the same time increasing it to €120,000, to pay for some much-needed works to the house (Insulation and New Windows and Doors). Hoping to go 5 year fixed with KBC at 2.6%, which, despite increasing our mortgage, will actually decrease our monthly payment.


2. Saving for Kids. At the moment, child benefit of €280 per month is just going into the general pot. My plan is to continue this until I have a fully funded emergency fund, and then to divert it either into a regular savings plan or start using it to overpay the mortgage with a view to being mortgage free when they go to college and able to fund their education through income. Which of these would be the preferred option (if either)?



3. We have no pension at all, and have put this off for much too long. We will be addressing that this year, for sure (once we have the mortgage switched). Work offer a PRSA scheme, and they top up employee contributions by 10% (not great, but better than nothing). Was planning on paying in €500 per month - €550 after employer contribution and costing us €300 per month after tax. Is this an ok approach? Am I better off with this work PRSA scheme or should I look elsewhere?


4. Should I just continue with the PCP until end of term and then look to pay off the balance from savings and keep the car (It is a good-sized family car so should suit us for many years)?



5. I am worried about the income protection/life insurance situation. My earning power is significantly higher than my spouses so if anything were to happen to me it could leave them in a very difficult situation.

As it stands, if I died the mortgage would be cleared and there would be approx. €250k paid out under death-in-service policy. But I am worried about how permanent that policy might be.

If spouse died, I would be mortgage free, still with good income, but additional childcare costs.

I’m thinking I need to take out substantial life insurance policy for spouse and a much smaller one for myself?

Do I need separate income protection to my work policy?




In summary, our short term goal is to switch our mortgage and get some necessary works to the house done. Then start pension and review Life Insurance cover.

After that it is figuring out what to do with our excess cash each month and what proportion should be allocated to each area.

- Pension

- Overpay mortgage

- Long-term savings for college

- General savings

Income/Expenditure Summary
Income 5480
Bills 1250
Car Costs 550
Day-to-day 1870
Surplus 1810 (before any pension/savings)



Income
My income - 3950
Spouse income - 1250
Child benefit - 280
Total approx 5,480

Regular Bills
Bins 26
Broadband 55
Professional fees 50
Eir and Sky 50
Energy 200
Netflix 7
Spotify 15
Home Insurance 32
Life insurance 13
Mortgage 485
Spouse Mobile phone 55
My mobile phone 0 (work)
TV License 13
Golf Membership fee 100
Health Insurance 150
Total approx 1250


Car Costs
Insurance 88
PCP 295
Maintenance 20
Petrol 150
Total approx 550

Day-to-day costs
Childcare 320
Groceries 600
Pocket money 450
Entertainment - 100
Kids Costs - 200
Sundry/Contingency - 200
Total approx 1870

Stop saving childrens allowance until you get to step 6 below.

1.Make a monthly budget each month, you must know where every euro of your take home pay is going each month "BEFORE" you spend it. Spend it on paper first. If it's not planned then don't buy it or spend it until next months budget.
2. Save 1000 euro as a small basic emergency fund and do not use the credit card for little emergencies use the cash. Build it back up if you use it Get the mindset that you will never use a credit card or borrow ever again.
3. Pay off debts smallest to largest apart from mortgage
4. When debts paid off( excluding mortgage) build up approx 3 months emergency fund.
5. Put 15% of gross household income into pensions
6. Put some money away to pay for childrens college ( assuming they might want to go)
7. Pay off your mortgage.

You could have your house paid off much quicker than 30 years. You could probably do it by your 45th birthday without much effort.

You are making a move on the mortgage, so that's good news and will save you money, freeing up some cash.

I too thought you were light on life cover. It is unlikely that your employer will get rid of the death in service benefit. What is more likely, is that you will leave and lose the benefit. Life cover is very cheap, so it won't cost too much to get some extra cover. And don't forget the widow's pension which will be about €1,000 a month too.

There's a maximum income protection of 75% of salary less state disability. Your work benefit is close enough to the max, so you don't really need more. It's alright not to have the most available.

On the car, you can save up the lump sum and pay it down at the end of the term or be in a constant cycle of car repayments. I would save up the €9k and pay it off. You can easily get 10+ years out of a car these days. No need to change it every 3 years for something you are never going to own.

Anyway, there's no point in telling you to do a million things as that won't happen. So pick 3/4 things:

1. Mortgage - get that sorted
2. Get life cover sorted
3. Save regularly to pay off car (can double as emergency fund)
4. Start pension - Look at the charges on the work PRSA.

Steven
www.bluewaterfp.ie

Laughahalla said:

Stop saving childrens allowance until you get to step 6 below.

1.Make a monthly budget each month, you must know where every euro of your take home pay is going each month "BEFORE" you spend it. Spend it on paper first. If it's not planned then don't buy it or spend it until next months budget.
2. Save 1000 euro as a small basic emergency fund and do not use the credit card for little emergencies use the cash. Build it back up if you use it Get the mindset that you will never use a credit card or borrow ever again.
3. Pay off debts smallest to largest apart from mortgage
4. When debts paid off( excluding mortgage) build up approx 3 months emergency fund.
5. Put 15% of gross household income into pensions
6. Put some money away to pay for childrens college ( assuming they might want to go)
7. Pay off your mortgage.

You could have your house paid off much quicker than 30 years. You could probably do it by your 45th birthday without much effort.

Click to expand...

Thanks, we are currently kind of at stage 4, building up a 3 month emergency fund. (Still have the PCP debt, but it's 0% and i'm not even sure we can make overpayments on it?

The monthly budget is already happening and I update it every day. I spend a little too much time looking at the spreadsheet, if anything, but the good news is we have been bang on budget for the first 2 months of the year.

SBarrett said:

You are making a move on the mortgage, so that's good news and will save you money, freeing up some cash.

I too thought you were light on life cover. It is unlikely that your employer will get rid of the death in service benefit. What is more likely, is that you will leave and lose the benefit. Life cover is very cheap, so it won't cost too much to get some extra cover. And don't forget the widow's pension which will be about €1,000 a month too.

There's a maximum income protection of 75% of salary less state disability. Your work benefit is close enough to the max, so you don't really need more. It's alright not to have the most available.

On the car, you can save up the lump sum and pay it down at the end of the term or be in a constant cycle of car repayments. I would save up the €9k and pay it off. You can easily get 10+ years out of a car these days. No need to change it every 3 years for something you are never going to own.

Anyway, there's no point in telling you to do a million things as that won't happen. So pick 3/4 things:

1. Mortgage - get that sorted
2. Get life cover sorted
3. Save regularly to pay off car (can double as emergency fund)
4. Start pension - Look at the charges on the work PRSA.

Steven
www.bluewaterfp.ie

Click to expand...

Thanks.

The PRSA charges are 5% of contributions. Since the employer is contributing 10% on top of my contributions, I guess effectively, I'm getting a 5% topup on whatever I put in.

Regarding life cover, I have read about some policies that pay out a "salary" on death rather than a lump sum. Are these policies less or more expensive than lump sum policies? I think this is something that might suit better. Spouse is not a wild spender or anything like it, but wouldn't take as much of an interest in financial matters as I would. If the worst happens, I think a regular salary would be simpler to manage than having to invest a big lump sum.

They are generally cheaper as the total payout reduces over time e.g. you take out 20 years of cover for €2,000 a month. If you died today, it would pay that amount for 20 years. If you died in 5 years time, it would pay €2,000 a month for 15 years. The normal lump sum payment would pay out €500,000 for example whether you died in day 1 or on the last day. Life cover isn't overly expensive anyway but people tend to under insure themselves, especially give the cost of children.

The salary payment life cover plan is a really good idea as it is easier to quantify how much you need and easier to manage. It hasn't been as popular as it should be.


Steven
www.bluewaterfp.ie

Under the salary payment option would the monthly payment be taxable as normal income, or is it treated as tax-free inheritance from Spouse?