Family of 6, newly mortgage free

Chocolatechip

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Age: 40
Spouse’s/Partner's age: 40

Annual gross income from employment or profession: 66k
Annual gross income of spouse: 46k

Monthly take-home pay: 5670 combined

Type of employment: Education
Spouse: private sector

In general are you:
(a) spending more than you earn, or
(b) saving?
Mostly saving. Outgoings averaged to aprox 4K a month.

Rough estimate of value of home: 320k
Amount outstanding on your mortgage: nil
What interest rate are you paying? n/a

Other borrowings – car loans/personal loans etc: nil.

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

Savings and investments: 40k in An Post-childrens allowance. 23K in BOI Fund. 50K in desposits

Do you have a pension scheme? yes, teacher pension but late starting (2008). Previous jobs pension in Irish Life Bond 37K value (Oct 20) I also now pay into AVCs (200 a month gross)
Spouse: Started pension through work in May 2019. Boss and husband paying 5% each.

Do you own any investment or other property? no

Ages of children: 11, 9, 6, 4.

Life insurance: yes - Flexible Protection with conversion until 60years. (not sure what this means but have arranged to have a call about it) 100K death, serious illness 50K. I also have salary protection.
Spouse: 250K death, 50K serious illness.

Question:
1. Now that mortgage has been paod off we have some left over cash every month to save. A BTL property next door has come on the market, priced at 180K. Would it be a good investment as wouldnt really plan on selling it again? (10 minutes from popular town in West of Ireland) Need 30% deposit & would need moderising. Possible rental of approx 8/9K gross a year. Has been let to different tenants for the last 15years regularly with very minimal vacancy.

OR just keep saving for the childrens future. & Whats the best way to do that?

2. Does the Life cover look ok?
 

RedOnion

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5,990
Possible rental of approx 8/9K gross a year.
That's max 5% gross yield which is shockingly poor for a BTL. You'll be paying 4% + interest on any borrowing and 52% tax on any profit.
I don't need to work it all out to know this will be massively cashflow negative from day 1.

Maximise you pensions first. You're both high rate tax payers, and at 40 can get tax relief on 25% of gross income, but your husband is only putting in 5%.

You should be able to do this, and still save for children's future.
 

Chocolatechip

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Thanks for your reply. I am guessing on the rent really but it's a country house & have checked Daft etc & rents roughly from 700 to 900 here monthly for a 2/3 bed. Like I said, its dated too. What yield % would I need to get for it to make any sense?? Feel like I'm dreaming that it might work & then do I really want to be a landlord.
Also would need to use a huge chunk of our savings for the deposit
 

RedOnion

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5,990
People have different expectations on yields.
Personally, I've looked at a few options, and it doesn't make sense at less than 9% or 10%, unless the rent is essentially 'guaranteed'. You'd probably get the same rent on a property costing 110 - 120k in a nearby town. Yields on country properties are typically lower - people are more likely to want to own than to rent.

There was a very similar thread last week which might give you some thoughts: https://www.askaboutmoney.com/threads/middle-aged-family-how-to-use-savings.222843/

Just in case it sounds like I'm anti - BTL, I'm not. But not all BTLs make financial sense. I also think you should maximise tax relieved pension contributions first.
 

Chocolatechip

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Thanks for posting that thread. Interesting read. I feel the asking price is high for the work & possible rent return, and as we would wish to have it for one of the children, we wouldn't sell it again. Will research further.

I will look into increasing my husbands pension.

Should I increase my own AVC's from 200 a month? I doubt I'll be able for teaching passed 60 so is there a good way to bridge that gap to 65 and I won't have full 40 years service at 65? But I think I can't withdraw my AVC's until offical retirement? I do have my other pension but that value is currently 37k & I'm not paying into that but I think I can withdraw that at 60? Sorry for all the questions but without mortgage now I want to start getting ready for the next stage e.g kids college & pensions. (feeling old having turned 40!!)
 

RedOnion

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5,990
as we would wish to have it for one of the children, we wouldn't sell it again.
The danger here is that you let all financial sense fly out the window, and it becomes an emotional decision! By the way, I know the feeling - there was a little cottage came up for sale very close to me, and I was half tempted to buy it, but it would have made absolutely no financial sense.

You also need to ask will the children want to live in that specific house? And when will you pass it on to them? Unless you leave it in your will, you'll end up paying CGT on any increases in value. What I'm saying in a roundabout way is if your intention is to provide for your children, then buy any house, sell it when they're in their 20's and give them the cash. They'll get the same financial benefit, and can buy a house where they want. It'll take all the emotion out of the decision.

Unfortunately I've no idea when it comes to public sector pensions, and if you've the options to buy back years, etc. There are a few posters who are very knowledgable in that area so hopefully you'll get some answers on that.

To be mortgage free, with savings, at 40 puts you in a very strong position. But your husbands pension is under funded.
 

Chocolatechip

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Nail on head there about it being an emotional decision as the house used to belong to my husbands aunt so next door to the family home.. But I see your point about it not making financial sense. Thank you for some clarity.
Pensions are a foreign language to me so hopefully someone can lead me in the right direction. Yes feel very fortunately to have paid mortgage in half the term so want to use the money wisely.
 
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RedOnion

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5,990
Do you know if husband's pension is a PRSA? It'll affect the maximum he can put in.
Also, did he turn 40 in 2020 or 2021?
 

Chocolatechip

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Yes it is I think. It's a Group Retirement Plan that says he'll retire at 60, with New Ireland, called Passive IRIS 2040. He will be 41 May 2021.
 

RedOnion

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5,990
Group Retirement Plan
That's probably not a PRSA, but a defined contribution group scheme. The reason it's important is with a PRSA, both Employer & Employee contributions count toward the Tax relieved limit. With an occupational pension scheme only the employee's count.

If your husband is only putting in 5%, that's 2,300 per annum.
He has scope to get tax relief on 25%, so he could be putting in 11,500.

He can still make the additional contribution backdated to 2020, and claim tax relief back on it (he needs to make the contribution before October). So putting in an additional 9,200 will cost him 5,520. Note, if he maxes his contribution, it'll bring his taxable income just below the standard rate cutoff band, so you need to switch a bit of his band to you to ensure you're getting 40% relief on it all.

The importance of putting in more than the minimum:
Assuming 5% investment return per annum by age 60 (I've used age 60 on an assumption this is desired retirement age, but I might have misread):
Putting in 5% + employer 5%, fund would be worth c. 164k (tax free lump sum 41k, leaving 123k to provide pension)
Putting in max* amount + employer %, fund would be c. 541k (tax free lump sum 135k, leaving 406k to provide a pension)
* max amounts: 25% until 50, 30% until 55, and 35% until 60, and 40% after that

If he works to 65, the pots become 235k vs 805k!

My plan would be:
- Husband max pension contributions, including back dated to 2020.
- You get advice on scope to increase your pension benefits.
- Work out what net income is going to be once pensions are being maximised.
- Work out any expected expenses, and save for them. You've a few years to go until college comes along, but you'll have 4 children spread out over 12 years or so, if they all go.
- Once you settle into that over the next year of 2, you'll get a sense of whether you've scope for further investments.
- Then start looking at a realistic retirement age. You've mentioned husbands pension has a retirement age of 60, and you can't see yourself teaching beyond 60. That'll take a bit of planning to bridge the gap until state pension kicks in, etc.
- If you want to buy a BTL, look out for the right property that makes financial sense, and when it makes sense. Don't rush into just because one comes up.
- On the life assurances question, check that you're aware of all your cover - e.g. if there is any death in service benefit in your husbands pension scheme. You've got salary protection, but it sounds like your husband doesn't. If he couldn't work for a prolonged period (1 year plus), would you get by on your salary, and illness benefit for him? I'd be looking at the cost of his serious illness, and whether income protection provides better value (premiums are tax deductible).
 

Chocolatechip

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Ok. I need to look into his pension so & see what can be added. He does have Death in Service as part of pension.

I don't think I can add to my teaching pension, hence the AVCs but can buy back years. I could be wrong here. I remember looking into it before & thought it was very expensive. If I go to 60 I will be 8 years short but do have the pension from my 1st job that I can withdraw at 60 but doubt it will be much as 37k now. Does that just sit or can I pay into it seperately so can increase that pension for 60?? Probably not?

I have salary protection with Irish Life along with our life assurance. But salary protection stops at 55? Should I increase that. Its 60 a month. Do I need to claim the tax back myself on revenue? I didn't know it was tax deductible. IF we are both covered for death by our pensions & both have salary protection, do we need Life assurance??

Thank you for taking time on a Bank Hol to reply to me!
 

RedOnion

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5,990
Does that just sit or can I pay into it seperately so can increase that pension for 60??
That just sits there. You can't put anything else into it once you've left the employment.

But salary protection stops at 55? Should I increase that.
Your youngest will only be 19? I extended mine until youngest will be 23.
Similar to you, I've no mortgage which factored into my decision.

Its 60 a month. Do I need to claim the tax back myself on revenue?
Yes, premiums for income protection should be tax deductible (at your marginal rate). The reason is any payout is taxed as income.
You should be able to get a certificate from Irish life with the details of annual premium, and then just claim through Revenue the same way as any health expenses, etc.
You can go back 4 years if you haven't been claiming it.
 

Chocolatechip

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I contacted Irish Life & old pension is in a MAPs Fund & is worth 40k now. She's going to ring re: moving it to a higher risk but I am not sure.

She said increasing to 60years on salary protection will be 72e a month. Thanks for the heads up on tax relief. She has sent me my certs for last 4 years.

Really appreciate your advice.
 
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