Hitting 50 but kids starting college should I prioritise overpaying mortgage or pension?

M

Mocame

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Age: 49
Spouse’s/Partner's age: 49

Annual gross income from employment or profession: €120,000
Annual gross income of spouse: €85000 base +€5,000 annual bonus

Monthly take-home pay: €9,500 (combined)

Type of employment: higher earner public sector, lower earner private sector

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving varies between €500-1000 pm, sometimes more

Rough estimate of value of home: €1.4 million ish

Amount outstanding on your mortgage: €435,000 (monthly repayment is €2,800 per month), 15 years left
What interest rate are you paying? 2.9% fixed until April

Other borrowings – car loans/personal loans etc - None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? none

Savings and investments: €65,000 savings in bank.

Do you have a pension scheme? Yes

Me - two DC private pension funds worth a combined €100,000. I am currently contributing 5% of salary and employer contributing 3%.

Spouse - has final salary public sector pension (the one which tops up the state old age pension to 50% of final salary, he says it is a 'post 95' pension - does that make sense to anyone?). He will have 39 years of pension contributions at 65, we have achieved this by buying back missing years and purchasing added pension years over the last decade

Do you own any investment or other property? No

Ages of children: 18, 16, 15

Life insurance: Yes but just covering mortgage for both, plus spouse has good income protection scheme from his job.


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

Over the last ten years we have sorted out a lot of financial priorities. One of these was moving to a bigger house because we were really overcrowded, we live in south Dublin so this is expensive and we spent nearly all of our savings on this to keep the mortgage as low as possible. The second was my husband's public sector pension we bought back missing years and added years so he will have almost a full 50% final salary pension (minus the state pension) at 65. He currently thinks that doesn't want to have to work past this age (he is in a really high pressure job) but may decide to at the time.

We have now built up our savings again to €65,000 but are facing a big increase in expenses as one of our kids has started college and the other two will start college over the next year or two. So I would like some advice on the following issues:

1. In view of the likely increase in our household expenses should I just pay this off the mortgage? I have been approved for a mortgage by Avant and had planned to pay use all the €65,000 to pay a lump off the mortgage off prior to moving. If I do both this will reduce our mortgage payments by €600 per month.

2. Or should I make additional payments to my pension fund? This is not enormous in part because I took time out of the workforce when my kids were young. But I will qualify for the full state contributory pension my husband will have a very good pension on retirement (if the state remains solvent of course) and will be a higher rate tax payer then. I will get half of his pension if he dies first. Is there such a thing as over providing for a pension? We are not big spenders and won't have a mortgage at retirement but we do like to travel. We trekked all over Asia and Africa pre kids and being able to fund more travel in retirement is important to us.

3. Or should I build a savings fund for my kids?

4. how much of an emergency fund should I keep?

5. should I get an income protection insurance for myself?
 
Your mortgage is comfortable in relation to the Loan to Value and the Loan to Income, so it's not a priority to pay it down.

You are paying €2,800 a month, of which €1,200 is interest. This means that you are "saving" €1,600 a month or €20k a year through clearing your mortgage.

We have now built up our savings again to €65,000 but are facing a big increase in expenses as one of our kids has started college and the other two will start college over the next year or two.
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This is where you start. With three children close in age, will you be able to comfortably cover all the education expenses out of current income?

I would guess that you can.

Assuming you can, your pension scheme is very light for your level of income and overall wealth. You should max your contributions. If I understand it correctly, you are earning €90k. You can contribute another 20% of your salary, or €18k and probably should do so.

This will leave you with €45k.

If you pay this off the mortgage, you won't have access to it assuming you are not moving house again.

And you won't be able to max your pension contributions.

After you move to Avant and pay 2% interest, the cost of keeping €45k in a deposit account is €1,000 a year. I think that is a cost worth paying to give you a cushion with which to pay your kids' expenses and to allow you to max your contributions again next year.

Don't worry too much if you are drawing down the €45k and can't make another contribution next year. When the kids are finished college, your mortgage will be lower and you will still have a few years to max your contributions.

Brendan
 
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Mocame said:
2. Or should I make additional payments to my pension fund? This is not enormous in part because I took time out of the workforce when my kids were young. But I will qualify for the full state contributory pension my husband will have a very good pension on retirement (if the state remains solvent of course) and will be a higher rate tax payer then. I will get half of his pension if he dies first. Is there such a thing as over providing for a pension? We are not big spenders and won't have a mortgage at retirement but we do like to travel. We trekked all over Asia and Africa pre kids and being able to fund more travel in retirement is important to us.
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You are spending about €6,000 per month after mortgage expenses - I would consider that pretty big!
Have a look at where it is all going - you might be surprised at some of it.
 
Hi Mrs Vines, I think our spending is around €4k a month and I understated the rate of savings in my initial post. We have managed to save 50k in around 2 years since we stopped piling money into our house so that actually works out at 2kish a month. Part of that is the regular savings I mentioned and part of it additional lump sums here and there during times when expenses are low Is our spending high? Probably compared to a many people, but a lot of it goes on our kids (college fees, grinds, health insurance, eyewatering sums on braces, spending money, shoveling grub into teenage sons etc, etc) so I would hope that would fall in retirement. Maybe I perceive incorrectly that we are not big spenders because very little of our spending seems to trickle down to me!
 
Hi Mocame,

I have similar aged "children" to you also with braces, although college fees haven't hit yet. I suspect that if you took note of where it actually all went you would likely see plenty that could be cut without anyone even noticing. All the supermarkets have special offers all the time - those ads with the families saving over €100 a week from switching to Aldi, etc have my kids laughing that they must have been buying gold-plated fruit before, and questions from them as to when the preferred cereal or treat will be back on offer are common.

I remember an old friend saying to me when they were small: "'NO' is a very loving word" - not suggesting that you are in need of any help on the parenting front, but knowing money doesn't grow on trees is a lesson best learned young!

Sybil
 
The OP is worth over 1 million euro (exc. Pension) prior to 50 years of age... Just to add some perspective... They have been doing something right financially. All good advice here thus far but definitely continue to live for now also... You can afford to. Even if you didn't save another penny you have more equity and better pension provision (spouse has seriously valuable PS pension) than 90-95% of the population.
 
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There's a lot of money tied up in the large home which presumably will not be needed when the last child finished college. That can be released then and should be part of the consideration now. The savings figure is inconsistent. Sounds therefore budgeting is needed.
 
Mocame said:
2. Or should I make additional payments to my pension fund? This is not enormous in part because I took time out of the workforce when my kids were young. But I will qualify for the full state contributory pension my husband will have a very good pension on retirement (if the state remains solvent of course) and will be a higher rate tax payer then.
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I would think a €100k fund at 49 is relatively low compared to your income today. I would make full use of tax-relieved pension contributions over paying down mortgage.
Mocame said:
4. how much of an emergency fund should I keep?
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My instinct would be to keep five figures to hand. Unexpected expenses can always occur and once you've paid off the mortgage you can't borrow it back at the same rate.

Mocame said:
5. should I get an income protection insurance for myself?
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IMHO people are too keen on life cover and under-provide for serious illness cover. At 49 you are much more likely to experience a work-limiting disability than to die. While you are pretty wealthy it looks like you would struggle to maintain the lifestyle (also with kids in college) if you found yourself unexpectedly on one income.
 
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