Help us direct surplus income to achieve the future we want

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2
Age:
40
Spouse’s/Partner's age:
34

Annual gross income from employment or profession:
142,000
Annual gross income of spouse:
96,000
Both of us receive bonuses of approx. 10% per annum (this may well be zero in 2021)

Monthly take-home pay:
11,000
Children’s allowance (280 pm) and some dividends spread across the year effectively bring this to a ~11.5k per month
Take home pay is net of monthly pension contributions

Type of employment: e.g. Civil Servant, self-employed
Both private sector

In general are you:
Saving
Rough estimate of value of home:
800,000
Amount outstanding on your mortgage:
461,000
What interest rate are you paying?
3.00% with BOI. We are 3 years through a 5 year fixed period. We are overpaying by the maximum permissible of 10% extra per month, meaning the monthly amount is 2,900. There is approx. 18 years left on an original 25 year term assuming over-payment remains constant. More on this below.



Other borrowings – car loans/personal loans etc.

No other borrowings or debt.
We bought a newer car recently with cash, so no need to upgrade this for foreseeable future.

Do you pay off your full credit card balance each month?
Yes it is paid off monthly, direct debit.

Savings and investments:
Approx. 170k in a selection of equities. Some CGT will be due on this so probably closer to 150 in reality.
Approx. 40k in current account/instant access saving account

Do you have a pension scheme?
Yes. We both have DC pensions with our current employers and have been contributing since we started work – c 20 years and c 14 years. Both are well funded currently
Person 1 monthly contributions are c 25% (split between employee and employer)
Person 2 monthly contributions are c 20% (split between employee and employer).

Do you own any investment or other property?
No

Ages of children:
4 and 2. No more will be had.
Childcare is 1700 per month.

Life insurance: Yes
Both have death in service of 4x salary, through employers.
Both have income protection with our employers.
We have Mortgage Protection on our PPR.
We have a good health insurance plan – cost for the family is c260 per month.

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

Recently we sold a property (ex-PPR) which was costing us money every year (tax bill). We bought and performed some work on our PPR (work came to ~50k), and recently bought a newer car (~50k). As we had kids we had 2 years on a single income (the lower income) and had all the expenses on that front. We have also lived well over the years, holidays, technology, restaurants, social lives etc.

We didn’t have a big focus on saving, leaving us as we are today (I appreciate it’s not a bad place to be). It looks like the “big capital spending” period is coming to an end.

We want to prepare for the next 5 to 10 years, or future life milestones. It may be a case of “steady as she goes” but we want to ensure we are headed in the right direction before setting the autopilot.

Some goals / questions:
We would like to be mortgage free as soon as is reasonably possible but are stuck on a fixed rate at the minute. We rang BOI a few times and the break fee is outrageous each time we inquire (>10k). Should we keep saving/investing with the intention to plough a large amount off the capital at the end of the fixed period? Or something else?

We both have senior jobs in our respective companies and therefore see ourselves continuing to pay for similar levels of childcare even when the children start school. We would like to consider the possibility of reducing working hours at some point in the future but have no immediate plans to do this.

Our current plan is to send them to public secondary school as there are very good schools in our area however we would like the option of private secondary school if that was needed at the time.

We would like to ensure we can afford to send our children to university if that is their desire when they are of age. Our thinking is that we will still be working by then (albeit ideally not full time for both of us), so should we try to have the mortgage as minimal as possible so we can use cash flow freed up from that, to cover university? Or something else?

We would like to ensure our retirements are well funded, potentially even early retirement. Should we be maxing our contributions through AVC’s? Is there some risk of breaking some pension pot threshold, for example the benefit statement on the lower salary DC scheme projects a pot of >2million if current contributions are maintained. (We appreciate this pot may be lower if reduced hours/early retirement comes into play.)

We have approx. 2 to 2.5k left over each month which just gets added to an instant saving account with zero interest. Should we be putting this into shares (ETF or whatever) each month by default, seeing as we already have a decent buffer of cash?

Just to add colour to our view on property investments, we recently disposed of a rental property and are glad to be rid of the hassle of renting it, paying a yearly tax bill, etc. If we wanted more exposure to property, should we consider a REIT instead?

Should we consider purchasing Serious Illness Cover? We have looked at it over the years but it seems expensive given we have income protection.

Are there any particular savings plans we should set up for our children in terms of planning for future inheritance tax?

If you’ve made it this far, Thank you for reading! And thanks for any advice.
 
We rang BOI a few times and the break fee is outrageous each time we inquire (>10k). Should we keep saving/investing with the intention to plough a large amount off the capital at the end of the fixed period? Or something else?
This is the break fee to pay off the entire balance.
If you want to pay for example 20k, you'll only pay a break fee for that bit. It will ALWAYS be less than the amount you'll save in interest.
 
Your incomes are very high, your pensions are well funded.

There isn't a huge advantage in holding equities outside of a pension fund while carrying what is objectively a very big mortgage.

Within a few years you could cut your mortgage in half by liquidating investments a diverting spare cash toward it.

This would leave you much better placed if one of you wanted to switch gears for a while. Plenty of families live on one of your incomes.
 
This is the break fee to pay off the entire balance.
If you want to pay for example 20k, you'll only pay a break fee for that bit. It will ALWAYS be less than the amount you'll save in interest.

Thanks, I didn't realise this was the case. Assuming the charge is spread linearly, presumably the charge for taking 50k off capital would be (50k/461k)*10k i.e. a charge closer to 1k. I'll contact BOI to see how this would impact the remaining fixed term and report back here so anyone else can see.

There isn't a huge advantage in holding equities outside of a pension fund while carrying what is objectively a very big mortgage.

Yes I agree, its hard to guarantee a return on equities (even though they've done well for us over recent years), compared to the certainty achieved from paying off the mortgage. I think this will be the focus for the next couple of years, once it isn't introducing a significant sacrifice in lifestyle.
 
First thing, read the Millionaire next door. It will give you a good appreciation of how people build wealth which gives them options to do things like reduce hours in the future.

You need to make savings like a bill, pay it into an account every month.

There is no reason why you shouldn't be able to accumulate a lot of money through savings and investments and achieve financial independence. The only thing that will stop you is your own spending. With high income households, there is always cash in your bank account and you don't have to think about whether you can afford the latest phone, clothes etc, you can just buy it. This is increasing the cost of your lifestyle and reducing the amount that you are saving. You need to flip that around and it will give you a huge amount of choices.


Steven
www.bluewaterfp.ie
 
If your worried about breakage fees you could always switch mortgage provider and avail of cashback
 
First thing, read the Millionaire next door.

The key insight of the book for me was not to buy fast-depreciating consumer goods.

I have never bought a new car, and often hold back on new buying new stuff until a few years into the product cycle when the price has come down.
 
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