Moneymakeover 40 and wondering how to balance saving for the kids vs. maxing the pension

M

marlene

New Member
Messages
3
Personal details

Your age: 40
Number and age of children: 3 – 8, 6, 1

Income and expenditure
public servant 110k

Spouse public servant 72k, also 40

Monthly take-home pay: 4,300 after AVCs etc.; 3,700 spouse

In general are you:
spending or saving; saving a very small amount as bills are higher recently

I have 30k of savings in a Zurich account earmarked for child #1 *but not in their name) and was thinking of in future, reducing my pension contributions to save a similar amount for child #3 (child #2 will likely be somewhat self-sufficient as an adult but live in the family home)


Summary of Assets and Liabilities

Family home value: 550k
200K mortgage outstanding at 3% fixed for next 3 years, remaining term 20 years
Investments: 33K as above
Emergency fund: 12K

Company shares : none

Buy to Let Property value: none

Total net assets: equity in home of 350K, 45K investments/cash, + pensions (not sure if I've done that right)


Other borrowings – 250euro per month car loan @ 0% for next 18 months


Do you pay off your full credit card balance each month? I don’t have one

Pension information

I have a mix of pensions

1st pension DB pre-2013 pension – will have 38 years service with final salary of 130k-140k

AVCs – 17K; started this about 3 years ago – currently contribute almost 20% across DB pension contribution and AVCs so I’m not maxing this out to 25%

Spouse pension pre-2013 DB – 40 years service with final salary 75K; no AVCs


Value of pension fund: as above, mix of DB and AVCs


Buy to let properties
Value: none

Other savings and investments:
33k as detailed above

12k emergency fund

About 4k saved towards holidays/defined impending expenses



Other information which might be relevant

Life insurance: income protection, health insurance €1,600 a year.

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

I’m concerned I guess about the housing crisis and wondering will my first child (aged 8) ever have a chance at getting a home, without substantial help. I’m trying to balance saving to get them started in adult life with tax-efficiencies in pension contributions. I figure if I can get one up and running I can worry about the next a little bit later. As a couple we will likely inherit an asset or a hefty chunk of an asset in time, but I don't want to assume that and prefer to plan assuming this is our situation for the foreseeable.
 
marlene said:
I’m concerned I guess about the housing crisis and wondering will my first child (aged 8) ever have a chance at getting a home, without substantial help. I’m trying to balance saving to get them started in adult life with tax-efficiencies in pension contributions. I figure if I can get one up and running I can worry about the next a little bit later. As a couple we will likely inherit an asset or a hefty chunk of an asset in time, but I don't want to assume that and prefer to plan assuming this is our situation for the foreseeable.
Click to expand...

Hi marlene, you are in a good spot, well done! There are plenty of worries in the short and medium term, I don't think you need to be dealing with issues that may or may not occur 20 years hence! In order to address this, the only thing I would do, would be to set yourselves up on a secure and sustainable financial path and those kinds of problems will either look after themselves or you will be in better position to assess the actual problem (assuming a problem actually materialises). Additionally, you note that you may come into to money in the future. It might be worth reassessing and taking more/less action on future house deposits, when/if it happens!

marlene said:
child #2 will likely be somewhat self-sufficient as an adult but live in the family home
Click to expand...

You obviously are not comfortable expanding on this but i'm guessing this may be a child with special needs of some sort. This may be more of a financial issue than you say. Situations evolve, you may need to be financially prepared for this e.g. growing your emergency fund over time.

marlene said:
Investments: 33K as above
Emergency fund: 12K
Click to expand...

Emergency fund seems fine for two well paid civil servants. You could likely deal with most emergencies that arise.

marlene said:
I have 30k of savings in a Zurich account earmarked for child #1 *but not in their name) and was thinking of in future, reducing my pension contributions to save a similar amount for child #3 (child #2 will likely be somewhat self-sufficient as an adult but live in the family home)
Click to expand...

You are falling into the classic trap of mentally bucketing funds for each child. You should focus on having a sustainable and healthy holistic financial situation and allocate resources to the children as the need arises. You are effectively investing for the long term while carrying short term debt. This would not be considered a sound financial move, usually. In your case, it seems manageable but for example, you could pay this off from your investments and free up €250 p.m. This could relieve some pressure month to month without any meaningful day-to-day sacrifice. If that's not required, then leave it as is.

marlene said:
currently contribute almost 20% across DB pension contribution and AVCs so I’m not maxing this out to 25%
Click to expand...

I wouldn't worry too much about maxing out your contributions. You are well served with pensions at the moment. Keep contributing but not at the expense of family comforts. There is a good balance to be had. Higher wages, lower expenses and higher contribution limits in the future may allow you to catch up later on.
 
Thanks, I so appreciate it. My parents weren't especially financially literate so I'm conscious of trying to get it at least half-right.

Yes, child #2 has a disability that means I suspect they will be more comfortable living at home for an extended period. However, they are very competent, and while we can't know for sure what the future brings all looks positive.

I suppose as my car loan is at 0% I thought it made sense to avail of and it also means I appreciate my car more as I pay a bit each month. I might leave it and my pension for now.
 
Have you spoken to anyone about your pensions / AVCs? You will get a very good pension with 38 years service, older scheme, good final salary. Might be better to put a bit of the family money into the spouce's AVC? It depends what you want in retirement. I'd aim for just below / at the higher rate of tax threshold , or else a lot will go on income tax. Might be better to invest outside AVCs if you're planning to retire at 65 but feel children might need money before that? I would suggest getting proper advice on that. I've a speckled work history so going nuts on the AVCs but probably would take the foot off the pedal if I were in your shoes (I'm no expert on this though).
 
I did speak to 2 people about pensions/AVCs but they gave me conflicting advice (one said I don't want to be *too* well covered vs. the other saying it's the most tax efficient). I have spoken with my spouse about AVCs and explained that the tax free lump sums are not transferable between spouses but they just nod and will never sit down and do the paperwork! So I feel even more pressure to be financially organized.
 
Could you sit them down and help them with it? I know some money podcasters would talk about a date night where you make a decision that you're going to have an admin day / evening and you both sit down and do it together.

Both people you spoke to are correct. It's the most tax efficient way of saving. But if you end up with say, €50k a year pension you'll be charged the upper rate of tax. Now, that's ok for some people. I might end up paying 40% tax on mine, but I'm still squirreling it away just to have it. And it will add to my max lump sum I can draw down. It also gives me options. I'll be able to go early and have less than €50k but still an ok amount. I would recommend sitting down with someone and going through the likely numbers for you both so you can correct course if needs be.
 
Khublei said:
Both people you spoke to are correct. It's the most tax efficient way of saving. But if you end up with say, €50k a year pension you'll be charged the upper rate of tax. Now, that's ok for some people. I might end up paying 40% tax on mine, but I'm still squirreling it away just to have it.
Click to expand...

My retired parents have an income about 50-55k.

Their effective income tax rate is about 9%.
 
Yes but that's two pensions right? I was referring to one pension, the OP's pension could be 50k alone and then the spouses pension on top of that. Very different to your scenario of essentially 25k per person.
 
Khublei said:
I was referring to one pension, the OP's pension could be 50k alone and then the spouses pension on top of that.
Click to expand...
In which case, the higher earner has a standard rate band of €53K and their spouse would have €35K before they are hit with high rate tax. And their tax credits would further reduce their actual tax liability.

This is far too simplistic a statement:
Khublei said:
But if you end up with say, €50k a year pension you'll be charged the upper rate of tax.
Click to expand...
As @Purple alludes to, it's the effective tax take that matters...
Protocol said:
My retired parents have an income about 50-55k.

Their effective income tax rate is about 9%.
Click to expand...
 
Protocol said:
My retired parents have an income about 50-55k.

Their effective income tax rate is about 9%.
Click to expand...
Just curious, is that tax and USC? I presume that they're exempt from PRSI.

I remember years ago regularly posting on Askaboutmoney my effective tax/PRSI/USC rate as a worker (married at the time) to disabuse some people of the misconception that one paid 52% (or whatever at the time) of one's income via those deductions.

What was your effective tax/PRSI take in 2006/2007

Based on my final 2006 payslip and P60 I have calculated that as a percentage of gross income (including non taxable employee pension contributions excluded from the P60 "total pay" figure) + BIK payments (VHI) + employer pension contributions (6%) (although excluding additional non PAYE income...
www.askaboutmoney.com
 
Last edited:
Khublei said:
es but that's two pensions right? I was referring to one pension, the OP's pension could be 50k alone and then the spouses pension on top of that. Very different to your scenario of essentially 25k per person.
Click to expand...

Parent 1 = main occupational pension + ARF income
Parent 2 = 0.5 State Pension
 
You must log in or register to reply here.
Back
Top