DINKs with too much cash

[messyleo]

Hi Steven

Can't plan cancer.

But most of us would not be subject to stress and would not go sick as a result.

The two OPs in this case are Civil Servants, so I would think it very unlikely.

Brendan

That's wild. Stress could come from bullying, a big project at a tricky time, personal stuff like a family issue etc.

Income protection is available through the public service union I think and is a cheaper rate than a lot of separate policies. The 3 months certified sick leave in the civil service is over a 4 year rolling period. Honestly, it only takes 1 bad dose of flu a year (say 1 week each) and maybe a broken arm or whatever (6-8 weeks off) and you have used it up. You could fall off your bike on the way to work etc. While a lot of people may not use it up 3 months over a 4 year period doesn't leave much room if you have any kind of accident or even normal bad luck, nevermind something like cancer.

 

[noelÓm]

I am a big advocate of taking a fully integrated approach to your overall assets including your PPR. But you seem to be overdoing it.

I can understand this perspective, but we'd rather understand all of our options clearly before settling on a decision. That's just us. It would be no fun to take a short cut.

You are well off and will be able to afford a nicer home in a few years. So that should be your objective. If an Excel spreadsheet tells you that by staying in your present home and maxing your AVCs, on retirement you will have 10% more assets in total, so what?

A perfectly valid perspective and similar comments in this thread are helping clarify our decisions over the next 2-3 years.

But most of us would not be subject to stress and would not go sick as a result.

The two OPs in this case are Civil Servants, so I would think it very unlikely.

There are a lot of valid grievances you can have with the civil service, but this is not one.

 

[NoRegretsCoyote]

Number and age of children: 0 (and agreed plan is to have none)

You're still young enough to change your minds on this. I know lots of people who have.

Kids are great, but also very expensive in the early years. Also in later years I would add!

In your shoes I would make my financial plans consistent with a change of mind on having kids in the next five years. Your housing needs would change (not just size but location) and moving to a "forever home" is best done only when you are happy with things like schools and other amenities for kids.

That probably means keeping more in cash or other liquid assets and not overpaying mortgage or making AVCs too much.

 

[noelÓm]

You're still young enough to change your minds on this. I know lots of people who have.

Kids are great, but also very expensive in the early years. Also in later years I would add!

In your shoes I would make my financial plans consistent with a change of mind on having kids in the next five years. Your housing needs would change (not just size but location) and moving to a "forever home" is best done only when you are happy with things like schools and other amenities for kids.

That probably means keeping more in cash or other liquid assets and not overpaying mortgage or making AVCs too much.

This is excellent advice for most cases, but we both share a very firm position against having children and I doubt that will change. And it won't happen by accident if you catch my drift. Relationship breakdown or death is more likely in our case IMO. I suppose there could be a series of family tragedies after which we are called on to adopt nephews, but that is also a very long shot. So remote that I would ignore it for the purposes of planning the next five years.

 

[_OkGo_]

We are looking for feedback on the following plan, which is set out in order of our current preference and sense of time priority. We're particularly interested in if you think we are missing anything or if you disagree with our rank ordering.

I think you have your priorities in the wrong order.

6. Consider moving to a more expensive home if it would improve our lifestyle

3. Overpay our mortgage fairly aggressively, though with an eye also on financing some home renovation in the next 2-5 years (possibly going as far as a grant-aided deep retrofit). If house prices fall 20%, we would like to still have a respectable (70-80%) LTV as we we will likely have to switch away from PTSB at some point.

Housing should be your number one priority. You need to decide now/soon whether you actually want to move or whether you want to renovate. If you choose to move then you should aggressively overpay your mortgage. If you choose to renovate then I would be keeping most of the savings in cash as it will probably be easier to manage without needing an equity release.

5. Spend more money on nice things

Don't go mad but yes you should do this. You have 2 good and very secure incomes.

1. Take out income protection for myself, re-evaluate the terms of my spouse's income protection, and re-evaluate our life contracts. Our main asset is our ability to generate strong income for the next 30+ years, so illness or the death of one partner is a major downside risk.

An untimely death would obviously be emotionally devastating but it is not a financial risk to you especially as you will not have kids. In the event that one of you kicks the bucket, the other is left with a mortgage free home, a substantial lump sum from death in service payments and they will still be able to continue to work. They will have a good income and no more mortgage payments, it would be very comfortable financially

Additional life insurance is more important to families with young kids. In this case, the additional cover could allow for reduced working hours or just funds to manage childcare costs and education etc.

8. Consider getting Income Tax relief on through the Employment Incentive and Investment Scheme

Run a mile, there is no tax saving when you lose the rest of your money. This is really gambling and something you definitely should not be doing while you have mortgage debt

2. Set up self-directed AVC PRSAs for each of us and make full use of Income Tax relief

This should be low priority considering your housing needs. Your pensions will be good regardless of AVC's. Revisit it in 5-7 years after you have moved or renovated. Don't focus so much on the tax savings that you think you are missing out on

 

[Gordon Gekko]

EIIS/BES investments are a nonsense unless you’re allocating 1-5% of your investable wealth into what’s ultra high risk stuff.

i.e. you’ve no debt, €1m to invest into equities and you put €25k into something moderately sensible.

 

[Clamball]

Our current home suits our needs now, but could be a little nicer. We also have no pressure to move relating to work or family, so we could stay here forever and probably be very happy. We will have to decide before committing to renovation. Either way, it will make sense to build up home equity and perhaps cash closer to the time. The idea of investing in our PPR, either through renovation or moving to a more expensive home, is still appealing from a CGT point of view and we like the comfort of knowing we could release equity late in life if needed by downsizing.

I think your way of viewing your PPR is incorrect here. It really does not matter how much your PPR is worth unless you are planning to sell. You don’t pay CGT on your PPR if it has been your PPR for the entirety of your ownership.

So you have a nice house and you are happy, but you can afford to move to a nicer house where you may be happier. Anything from south facing, a room for a home office, a bigger garden to garden in, a shed for hobbies, space in the kitchen for 8 dinner guests rather than 4. Any reason that makes sense to either one of you is a good reason to move to a nicer house. This way you can enjoy your nicer home for your lifetime.

And if your PPR increases in value from 500K to 990K after you pay off the mortgage, or reduces in value to 100K it should make no difference to you because you will continue to live in it as you PPR after you retire.

Use your money to have a better, nicer lifestyle in your 30/40/50/60s before you retire. You normally build wealth to support yourself and your family for unexpected life events, children, income in retirement. You are well covered for all three, so use the money on buying that nicer house.

 

[noelÓm]

I think your way of viewing your PPR is incorrect here. It really does not matter how much your PPR is worth unless you are planning to sell. You don’t pay CGT on your PPR if it has been your PPR for the entirety of your ownership.

I don't agree. Our PPR has value whether we are selling it or not. There are costs to releasing equity or liquidating it (estate agent fees, uprooting from social network, general grief), but that doesn't mean our house should be treated as a special class of asset that is ignored for the purposes of financial planning. I think for some people the romance of a "forever home" and a bequest motive clouds their thinking on this issue. Perhaps there is something else I am missing in your argument? Imagine a situation in which I or my spouse is diagnosed with some rare illness that won't be covered by medical insurance or state provision. I certainly like the idea of having a very valuable, liquid CGT-exempt asset to sell or re-mortgage in order to finance treatment. I'll take the hit on a life loan if I get to stay alive!

 

[T McGibney]

I certainly like the idea of having a very valuable, liquid CGT-exempt asset to sell or re-mortgage in order to finance treatment. I'll take the hit on a life loan if I get to stay alive!

A house is a comparatively illiquid asset in any short-term horizon. Particularly if you're needing money in a hurry because of illness or other calamity.

 

[noelÓm]

Use your money to have a better, nicer lifestyle in your 30/40/50/60s before you retire. You normally build wealth to support yourself and your family for unexpected life events, children, income in retirement. You are well covered for all three, so use the money on buying that nicer house.

This and other comments in the thread are helping us put things into perspective.

The crux for us will be to determine (1) if we are happy to stay in our existing house and renovate (2) if we think we will move instead and (3) what timeline we are satisfied with for (1) or (2) and if transferring wealth into retirement through AVCs is a good trade-off at this point.

 

[noelÓm]

A house is a comparatively illiquid asset in any short-term horizon. Particularly if you're needing money in a hurry because of illness or other calamity.

Fair point. At the risk of going down a rabbit hole, we would dump all other liquid assets in this scenario and price the house keenly. Consider re-mortgaging through life loan or similar if that would be quicker. I wonder also would a medical clinic take a charge on a house if it was on the market. Maybe not.

 

[T McGibney]

Fair point. At the risk of going down a rabbit hole, we would dump all other liquid assets in this scenario and price the house keenly. Consider re-mortgaging through life loan or similar if that would be quicker. I wonder also would a medical clinic take a charge on a house if it was on the market. Maybe not.

I suspect you are overthinking this.

I'd have thought that with your resources it should be possible to have sufficient quality health insurance that would cover pretty much any illness?

And houses are for living in and enjoying and shouldn't be a financial lifeboat. After all, if one of you dies, the survivor will have to live somewhere too.

 

[noelÓm]

I suspect you are overthinking this.

I'd have thought that with your resources it should be possible to have sufficient quality health insurance that would cover pretty much any illness?

And houses are for living in and enjoying and shouldn't be a financial lifeboat. After all, if one of you dies, the survivor will have to live somewhere too.

I am certainly overthinking it. But it is a lifeboat, whether or not the waves are only in your head.

 

[T McGibney]

But it is a lifeboat, whether or not the waves are only in your head.

It really shouldn't be, though.