Moneymakeover Both in 40s, looking at next steps

[Sprocket77]

Age:
48
Spouse’s/Partner's age:
43

Annual gross income from employment or profession:
€90,000, potential bonus of €15,000 – new employer so not sure yet of what the likelihood of getting 100% of bonus is. Company doing well, so hopefully good
Annual gross income spouse:
€83,689

Combined take home pay is about €8,300 per month

Type of employment:
Private sector, only started new role in last 2 months

Public sector - healthcare

Expenditure pattern:
We are responsible, but not saving much, tend to not go crazy with nights out, upgrading cars, chasing the Jone’s etc. We do go on two nice holidays every year, want to bring the kids away where neither of us did with our families as kids. Living costs have increased significantly in the last few years, especially as kids get older and income hasn’t really kept pace.

Good at getting best prices on groceries, utilities, bills etc.

We save a few thousand each year, I feel this should be higher, but we have always kept finances separate, which is what my wife wants to do, so not 100% what everything gets spent on, but in fairness she’s not bad in terms of spending, hates using a credit card.

Rough estimate of value of home
€750,000
Mortgage on home
€379,427 @ 2.15% - Green Mortgage, fixed rate ends next February, so worried about a spike in the repayments there

Other borrowings – car loans/personal loans etc
None

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

Savings and investments:
€65,000 in savings split between deposit accounts and a couple of grand in individual shares in Revolut. Need to get this working for us.

Do you have a pension scheme?
I have a defined contribution pension

Current value €325k, started in 20s, but didn’t think too much about it and was in high fees PRSA, once I started paying attention it had probably grown by contributions only and any growth had been eaten by the fees.

I contribute 13% of salary, work a measly 3%. I’ll match this contribution on bonus should I get it.

Wife will receive 50% of salary (including state pension) after 40 years’ service, she has 18 years to go. She also gets a lump sum 1.5 times salary. These both reduce if she retires before 65.

Do you own any investment or other property?
No. Did before we bought our current house, took a bath on it which hurt financial position several years ago

Ages of children:
11 and 9. Older child has just stopped with child minder this month, so will have an additional €400 per month which will be saved specifically. Two more years at same level for the 9-year-old.

Life insurance:
Mortgage Assurance. I have 2 times salary with my new employer, again a bit measly. I’m looking at getting an additional €170k cover at a cost of €39 per month from Zurich to bring cover on me up to €350k. My wife is covered for 1 time salary in work and have a separate cover of €240k with Zurich for her

What specific question do you have or what issues are of concern to you?
Overall I know we’re not in a bad place. We have additional free cash with childminder reducing, but that could be eaten up in February with mortgage hike.

I’m more comfortable with the pension now, would I prefer if it was higher, of course, but I think it’s going in the right direction now. I’m continuously increasing my contributions when I can, if we get any tax cuts in January, I’ll push them into pension. I know people would advise getting contributions up to 25%, but I don’t have the additional income for that, and I also feel reading here that people seriously overestimate what people need in retirement. My parents, both in their 70s are spending less than €40k per annum.

We will have to change at least one car in the next couple of years, cars are 10 and 15 years old. Was car shopping with my brother-in-law last week and we both got a land at just how expensive second-hand cars are now, prices have gone mad, so will need to allow for that.

I would like to put money into ETFs, but the deemed disposal is a bit of a joke. Maybe if the new scheme is anyway worth looking at, I will invest there, not sure I have massive faith in them getting it right.

I’m looking for a nudge in the right direction, rather than a complete overhaul. The mortgage goes until I’m 67, I would like to knock a couple of years off that by making increased payments, but the likely mortgage increase in February will probably nix that for the moment.

My wife has some health issues which means she may or may not be able to work for another 18 years to get her 40 years service, I think she’d have to switch to a management role if she did which she is well capable of but not really inclined to.

We hadn’t really thought of retirement too much before now, but we’re figuring out if we want to be working the whole way up to 65/66 (wife definitely won’t), so anything we can do to give us the flexibility to allow us to knock a number of years off that would be positive.

 

[Sarenco]

I think you should really be looking to maximise your tax-relieved pension contributions at this stage.

Forget about investing in random individual stocks with after-tax money.

If you find that you have surplus cash at the end of the year, having maxed out your pension contributions, throw it at your mortgage.

Keep it simple.

As an aside, I think you have more than adequate life assurance cover as things stand.

 

[locknbarrel]

If your wife might possibily fall short of her full 40 years service - there may some options to consider:

• AVCs
• Buying notional service

It looks like she has a reasonably full service history. If she is a teacher, you should also research 55/35 rule.

 

[_OkGo_]

I’m looking for a nudge in the right direction, rather than a complete overhaul.

To be very blunt, you don't need a complete overhaul but you do need a lot more than a nudge.

You've kind of skirted around them but you have two big financial goals which are clearing your mortgage early and being able to retire early but yet you say you can't afford to increase pension contributions and don't expect to be able to increase mortgage payments.

There's no silver bullet, unless you make a plan and some changes then you won't meet your goals

I also feel reading here that people seriously overestimate what people need in retirement. My parents, both in their 70s are spending less than €40k per annum.

While there is a tendency on AAM to overestimate, you are equally underestimating by using an irrelevant comparison of your parents. Your own lifestyle spend right now is much higher.

You have income of €8.6k (inc child benefit) and mortgage/childcare of about €2.8k leaving you with €5.8k of lifestyle spending. That's almost €70k. If you are not spending it on "nights out, upgrading cars, chasing the Jone's" then where is it going?

I know people would advise getting contributions up to 25%

You are nearly 50 so it'll be 30% for you soon . But joking aside, you really do need to make an effort to increase this. You are coming into a period of a few years where childcare drops off and before 3rd level ramps up. It's crucial that you use the extra cash flow to fund your pension. If you just allow it to be eaten by more lifestyle then you'll be working all the way to retirement

 

[Sprocket77]

As an aside, I think you have more than adequate life assurance cover as things stand.

This is interesting, why do you think the cover is adequate already? Mortgage would be paid off, which is a huge expense, but don't want to leave my wife short if anything happens to me. One thing I've only recently considered is that she would also inherit my pension fund, so she might be well covered with that.

You've kind of skirted around them but you have two big financial goals which are clearing your mortgage early and being able to retire early but yet you say you can't afford to increase pension contributions and don't expect to be able to increase mortgage payments.

I'm increasing pension contributions, including recently with the new job, I just haven't been able to get near to the 25% or even the 30%, thanks for aging me there The mortgage payments I would find extra for, but I'm already budgeted to need another €300 odd per month in February when the fixed rate ends, so that will be the priority first.

Do now have the savings from the childcare to reallocate, so question is what's the priority, additional pension for me, AVC for wife, increase mortgage payments.

While there is a tendency on AAM to overestimate, you are equally underestimating by using an irrelevant comparison of your parents. Your own lifestyle spend right now is much higher.

You have income of €8.6k (inc child benefit) and mortgage/childcare of about €2.8k leaving you with €5.8k of lifestyle spending. That's almost €70k. If you are not spending it on "nights out, upgrading cars, chasing the Jone's" then where is it going?

That's fair, I could be underestimating what's needed, but when I strip out mortgage and kids that figure is closer to €50k, not €70k
It's going on kids, they're expensive, who knew and we do not spoil our kids by a long shot.

Holidays are the only, I won't say extravagence, because they are seriously planned and budgeted and not OTT, but they are not something either of us is willing to sacrifice, we'd rather have these holidays now with the kids while we're healthy enough to enjoy them.

This isn't about lifestyle creep, increases in salaries are being eaten up by inflation, so increases in pension contributions or mortgage payments are found from existing funds. Hopefully that I'm now in a company where the bonuses are paid this will give room for additional AVC or mortgage payments or to be able to save for replacing a car.

We don't intend saving separately for college, we're in South County Dublin, kids can be guided towards course choices in Dublin.

I think the best option for the savings from childcare are to either go into the mortgage as overpayments or AVCs for my wife to bridge any gap either for not reaching 40 years to that gap between hitting 40 years and getting to 65. Can then use bonus payments to top either up.

 

[misemoi]

On the college expenses, don't dismiss this entirely.

• Even if they live at home, you need to budget for some costs - commuting, eating out during long days, socialising, potential Erasmus period, potential Masters.
• Keep an eye on what they are considering for college, while virtually all courses can be done in Dublin, what if they don't get into their choice in Dublin and have to attend another college outside of Dublin or abroad? Thinking here of courses like Medicine, Vet, Denistry etc.
• What if they choose a course they can't reasonably commute to eg TUD or DCU and need a car or to pay rent?
• Not every course will allow the capacity for them to work to fund it during term time and while they have long summer breaks if they want to experience things like J1 or living in another country for language development they might not be able to max earnings in the summers.

 

[Hmm5673]

What if they choose a course they can't reasonably commute to eg TUD or DCU and need a car or to pay rent?

In fairness, if they can get to Trinity, Grangegorman is only about 15 mins away by Green luas. And by the time they’re in college DCU should be ten mins on the metro.

 

[ClubMan]

Grangegorman is only about 15 mins away by Green luas

In case it's relevant... I don't know what the long term plan is but not all TUD courses have been centralised to Grangegorman to date. E.g. Grangegorman is a 10 minute walk from my place but my son is doing a course that is only offered in TUD Tallaght so has to commute - albeit on the Luas Red Line which is also convenient to home.

 

[misemoi]

In fairness, if they can get to Trinity, Grangegorman is only about 15 mins away by Green luas. And by the time they’re in college DCU should be ten mins on the metro.

For sure. But south county Dublin is a large area with some patchy public transport options depending on where you live. That is what I meant by a reasonable commute, door to door, 4/5 days a week for a large chunk of the year. It is potentially something to consider in this case, maybe not.

 

[Premos]

south county Dublin is a large area with some patchy public transport options depending on where you live. That is what I meant by a reasonable commute, door to door, 4/5 days a week for a large chunk of the year. It is potentially something to consider in this case, maybe not.

Fully agree. We are in North co Dublin and one of our children started Dcu a couple of years ago. In theory, buses are available. In reality, with a busy course and at least 1.5 hours each way commute (when bus and classes align perfectly), giving him a car was quickly seen as the solution.

 

[Sprocket77]

For sure. But south county Dublin is a large area with some patchy public transport options depending on where you live. That is what I meant by a reasonable commute, door to door, 4/5 days a week for a large chunk of the year. It is potentially something to consider in this case, maybe not.

It is definitely something to consider, but luckily where we are UCD is a 20 minute cycle, Luas is a 15 minute walk away which covers Trinity and TUD and the bus to DCU goes from the top of our road. Although in fairness, I wouldn't want to be doing that commute, bloody bus is a joke.

In terms of budgeting for normal college costs, eating, public transport, socialising I think that can generally be covered from normal income rather than saving specificaly for it. They can also get part time jobs, the level of minimum wage now means kids can earn a decent amount for very few hours, either across term time or during the Summer. Biggest annual expense would be the fees

 

[Premos]

In terms of budgeting for normal college costs, eating, public transport, socialising I think that can generally be covered from normal income rather than saving specificaly for it.

I would agree with that. However, it costs quite a bit. I would say that currently my student costs us about 6k just for fees, car insurance and maintenance, health insurance and basic equipment for third level. I could add, food, socialising and travelling with us, bits of clothing (when I feel generous...), probably 800 to 1k a month.
Your children might be cheaper in end of primary/early secondary schools but then costs ramp up again.

They can also get part time jobs,

That helps but part-time jobs are difficult to manage for some courses with more hours..

The reality is that your children will not be cheap in the next 12 to 15 years so you need to find ways to manage your expenditures and increase your pension contribution within your income.
If you want to retire early, your children might still be in college when you retire so that you would need to be financed.