Continue the same plan or am I blind to anything?

aristotle

Registered User
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860
Do you think I should just continue as is, I don't think there is much I am doing wrong financially with things like paying pension AVCs and picking low cost mortgage rates in the past etc

Age: 45
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: 135k
Annual gross income of spouse: 25k self employed

Monthly take-home pay: 6300 from my employment

Type of employment: I am an employee, spouse is self-employed

In general:
saving about 3k per month

Rough estimate of value of home: 335k
Amount outstanding on your mortgage: 110k
What interest rate are you paying: 0.5% over ECB

Other borrowings: none

Do you pay off your full credit card balance each month? yes
If not, what is the balance on your credit card?

Savings and investments: 165k cash, 15k in equities, 100k (net after tax value) in employer Share Options scheme

Do you have a pension scheme: yes, DC scheme 650k in fund (employer 8%, my 5% plus I make AVCs to the allowed maximum, separate PRSA with 75k fund, spouse has old DC scheme from previous employer 75k (no contributions being made). All funds in high risk equity funds.

Do you own any investment or other property: House rented out, value 335k, mortgage 140k at 0.5% over ECB, rent 1000 per month, mortgage repayments 900 per month

Ages of children: 6,10

Life insurance: 4 times salary via my employment, separate 700k life insurance on me, mortgage protection policies on both properties

Risks that I am aware of:
- I don't have income protection insurance
- Landlord regulation changes may prevent me from selling my property with vacant possession. But I have reasonably good tenant so no hassles, but rent is at least 500 is not 900 per month below market rates. Decision to be made about selling....
- How much money do I really need in retirement, at this rate I might have too much in the pension funds but then again there might be big pullback on equities that will change the values.
- Best practice says I should sell my share options in my employment, but I am willing to take a risk on it and sell some or all in 3-5 years.

In the next 5 years:
- Will want to buy a bigger property in the area, prices currently about 750-900k for a good family home

My question is do I just continue as I have been doing, because I will need cash for a house I don't think I should look to any other investments?
 
Last edited:

Brendan Burgess

Founder
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46,893
- Will want to buy a bigger property in the area, prices currently about 750-900k for a good family home
OK, so this is the big issue.

You have €225k equity in your home.
You have savings of €280k
You have buy to let equity of €200k
Total €700k

You can comfortably buy your new home without selling your investment property but you would have to sell your home.

It might be difficult to sell the investment property when the time comes. The market might be dead or the legislation may make it impossible. So I think you should sell it now while you can.

This would allow you to buy your new home without all the hassle and chain problems arising from selling it and trying to synchronise everything. That would be a huge comfort.

I am not suggesting that you should hold onto your existing home as an investment. I am suggesting that you should hold onto it until you have moved into your new home.

Selling the investment property now means that if a house comes up which you like, you will be able to move immediately on it. You won't be putting in offers conditional on selling your own or the investment.
 

Brendan Burgess

Founder
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46,893
With a mortgage rate of 0.5%, it doesn't save you much clearing your mortgage. So I would hold onto the mortgage on your home as it means you will have more cash to buy your new house.
 

NoRegretsCoyote

Registered User
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3,972
Life insurance: 4 times salary via my employment, separate 700k life insurance on me, mortgage protection policies on both properties
Your life is insured well into seven figures here. This seems like a lot as presumably your wife will have greater earning potential when the kids are older.

This is expensive and I think you could lower death cover and take out income protection. At your age it is much more likely that you will suffer a life-limiting disability than actually dropping dead.

Am not very knowledgeable and you have to check terms very carefully but to me it seems worth checking out. Disability benefit is not very much compared to your current income and would be a big adjustment.
 

Brendan Burgess

Founder
Messages
46,893
- Best practice says I should sell my share options in my employment, but I am willing to take a risk on it and sell some or all in 3-5 years.

You can handle the risk.

But if the company gets into trouble and your shares collapse and you lose your job at the same time, your financial plans would be ruined.

There is a reason that it's best practice. Sell these shares.

Brendan
 

aristotle

Registered User
Messages
860
Any reason your spouse isn't contributing to a pension?
She only started earning as self employed in the last 2 years, and she would only get 20% tax relief. So I thought I read making contributions to a pension with a 20% tax relief wasn't a great idea but maybe I am mistaken?

Your life is insured well into seven figures here. This seems like a lot as presumably your wife will have greater earning potential when the kids are older.

This is expensive and I think you could lower death cover and take out income protection. At your age it is much more likely that you will suffer a life-limiting disability than actually dropping dead.

Am not very knowledgeable and you have to check terms very carefully but to me it seems worth checking out. Disability benefit is not very much compared to your current income and would be a big adjustment.
The premium for the 700k life cover isn't too bad at 500 per annum and covers me until the kids finish college so hopefully beginning to get on their own feet then. I hear you about the income protection, I have just kept putting it off.

You can handle the risk.

But if the company gets into trouble and your shares collapse and you lose your job at the same time, your financial plans would be ruined.

There is a reason that it's best practice. Sell these shares.

Brendan
Yeah it would be a big disappointment but I don't think it would mean by financial plans would be in ruin? I would hopefully get another job so what I loose would be the value of the share options. That would be a fairly big loss for sure but worthy of the risk versus hopefully the Share Options being worth 50% or more in 3-5 years time. But it is a bit of a gamble.
 

RedOnion

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Messages
6,198
The premium for the 700k life cover isn't too bad at 500 per annum and covers me until the kids finish college so hopefully beginning to get on their own feet then. I hear you about the income protection, I have just kept putting it off.
Income protection premiums are tax deductible (any payout is subject to tax). After tax it shouldn't cost much more than you're spending on life cover. You might even have more life cover than you think - you'll need to check the full conditions of your employment benefits; does the death in service also provide an annual income for spouse / children until children are adults? There'll also be a payout based on your contributions to the pension fund on top of that.

So I thought I read making contributions to a pension with a 20% tax relief wasn't a great idea but maybe I am mistaken?
You might well have read it, but that's just someone's opinion! :)

Not everyone will agree with me, but I think it makes perfect sense. I don't understand why people think getting 40% relief and paying 20% or 40% on drawdown is fine, but getting 20% relief and drawing down tax free doesn't?

Unless something goes wrong, you will be paying higher rate in retirement. And your spouse has her own tax bands in retirement that possibly won't be used. So she could pay into pension now; get 20% relief, with gross roll-up inside the pension wrapper. Take out 25% tax free on retirement, and draw down the remainder (potentially tax free) in retirement.

Then on top of that, it might be possible to end up with the same effect as receiving higher rate relief. I'm assuming the rental property is just in your name? Switch it into joint names so that the rent profit starts to use her 20% band; it'll push her income into higher rate band (assuming you're jointly assessed and managing your bands correctly), and then she'll get 40% relief on any contributions to pension.
 

aristotle

Registered User
Messages
860
What does it mean to put the rental into joint names? The mortgage is in just my name anyways.

Good point about the pension with 20% relief, I have missed the boat for the 2020 tax year but will research this a bit more before my 2021 tax return.

Also will price the income protection again.
 

RedOnion

Frequent Poster
Messages
6,198
What does it mean to put the rental into joint names? The mortgage is in just my name anyways.
You could transfer the house into joint names, but will require agreement from bank as you've a mortgage.
Or transfer the beneficial interest of the rent to her, or do a partnership agreement. They all require legal advice
 

Brendan Burgess

Founder
Messages
46,893
I have started a fresh topic on the side issue of whether your wife should be making pension contributions

 

NoRegretsCoyote

Registered User
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premium for the 700k life cover isn't too bad at 500 per annum
Indeed this seems.good value but what are you insuring against here? In the unlikely event of your death your spouse will have comfortably north of a million euros in cash, a job, no PPR mortgage, and a profitable rental.

It's a vast amount of cover, and there are other things to spend your money on while you're still alive
 

aristotle

Registered User
Messages
860
Indeed this seems.good value but what are you insuring against here? In the unlikely event of your death your spouse will have comfortably north of a million euros in cash, a job, no PPR mortgage, and a profitable rental.

It's a vast amount of cover, and there are other things to spend your money on while you're still alive

I am insuring against an untimely death and as main earner I want my family to be very comfortable and if my spouse does not want to work while kids are young and even up to them going to college then the life insurance policy will allow that, and will also support my children as they start off in their working lives.

With the premium of 500 per year I think it is worth it. Now that I think of it our PPR life insurance is only in my wifes name.
 
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