Moneymakeover Looking for investment and retirement planning advice

[Frasier Crane]

Personal details
Age: 54
Spouse's age: 60
Number and age of children: one (26)

Income and expenditure
Annual gross income from employment or profession: €200k (130k base + RSUs)
Annual gross income of spouse/partner: €50k
Monthly take-home pay: €5k (net - after pension + AVCs + ESPP deduction)
Type of employment: employee (private company)

Expenditure pattern
Overall saving more than spending
Monthly outgoings: ~3.5k average (exc. mortgage)
Largest spend are trips and holidays: ~12k p.a.
Currently my income covers the bulk of outgoings

Summary of Assets and Liabilities
Family home value: €800k
Mortgage on family home: €90k

Cash (me): €50k
Cash (spouse): €100k
Defined Contribution pension fund: see below
Company shares: $250k (~€220k)

I own a foreign property: value ~€200k
No mortgage, no rental income, ~ €3k annual expenses

Family home mortgage information
Lender: PTSB (was Ulster Bank)
Interest rate: 2.35%
Type of interest rate: fixed until 30/09/2027
Remaining term: (Original term is not relevant): 109 months
Monthly repayment: €946

Other borrowings – car loans/personal loans etc
None
Do you pay off your full credit card balance each month? Yes

Pension information
I have several pension pots:
Pension 1: DB from Previous Job (UK) - Current value: £24k p.a. (at age 65)
Pension 2: DC from Previous Job - Current value: €143k (Irish Life)
Pension 3: DC from Current Job - Current value: €124k (New Ireland)
Pension 4: Foreign investment product - Current value: €12k p.a.
UK State Pension:: £12k p.a. (maxed out)
Ireland State Pension: 12 years of contributions to date

Currently I contribute 10% to the pension (employer 6%) and then max out via lump sum at the end of the year.

Spouse has a small DC private pension (only started one year ago), full UK State Pension and ~10 years worth of contributions to the Ireland State Pension.

Other
Mortgage protection
Health insurance through my job
Death in service benefit through my job

Other savings and investments:
None

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

I feel we’re in a reasonable place but have been very hands-off with finances.

I am in a well-paying IT engineering job that is becoming less and less enjoyable so thoughts have turned to early retirement, or at least winding down to part-time / contract work. My main aim is figuring out how realistic that is and over what time frame. I don't think it's realistic right now but maybe in another 2-3 years if I can maintain my current income?

Spouse is similarly thinking about taking a step back from full time work, so trying to plan without her income.

Seriously considering relocation to Spain, either pre or post retirement, with an option to keep a smaller property here in Ireland. In theory my job is portable but I don't know for certain if my employer would support it. I appreciate the decision to move or not, and when, alters the picture significantly so probably need to think through different scenarios.

Investments:

• I know I need to sell my company shares and diversify but where to invest?
• Does it make sense to clear the mortgage?

Pensions:

• So far my gut feeling has been to leave the UK Defined Benefit pension where it is but should I consider moving to EUR and consolidating?
• For the two DC pensions I’m invested in the default strategies - should I change? Should I consolidate them?
• Hard to figure out the total projected pension income but maybe ~60-70k? That would cover our current lifestyle already.

Daughter working but still living at home due to high cost and competition for rentals in Dublin. I’m considering a gift / early inheritance to get her started on the property ladder.

One significant purchase near-term is the replacement of our 20 year old car, and possibly some home improvements as well.

I think I’ll contact a financial advisor but just wanted to get some thoughts and comments from the kind people here.

 

[ClubMan]

Family home value: €800k
Mortgage on family home: €90k

Cash (me): €50k
Cash (spouse): €100k

Family home mortgage information
Lender: PTSB (was Ulster Bank)
Interest rate: 2.35%
Type of interest rate: fixed until 30/09/2027
Remaining term: (Original term is not relevant): 109 months
Monthly repayment: €946

Does it make sense to clear the mortgage?

In my opinion your first step should be to clear your mortgage. The €946 p m. can then be put to other uses.

 

[patfert1]

In my opinion your first step should be to clear your mortgage.

I would agree. It may seem like you can earn more from stock market investments than your mortgage rate, but ask yourself would you borrow money to play the markets... looking at your profile, probably not. Plus you hinted that you are not well-diversified so you run a significant risk with the stocks... they perform well until they don't.

At a glance you seem well set up for retirement but you have a while to go yet until you will live from these. You'd need a significantly bigger pot to retire early but part-time work would certainly bridge the gap. The IT world now is obviously high pressure for many people due to AI. My employer responded very well a few years ago when I proposed to move to a 3 day week with an eye on emails in the other days. It was certainly a win-win.

 

[Sarenco]

Could you elaborate on Pension 4? Is that effectively a DB pension of €12k per annum payable @65 or something else?

Also, do you intend to retain the foreign property for the foreseeable future?

 

[givecredit]

In my opinion your first step should be to clear your mortgage. The €946 p m. can then be put to other uses

Mortgage is fixed until sept 2027 at a good rate. Don't do anything with that until sept 2027 at earliest.

Make sure to max out spouse 40% pension contributions.

Sell company shares, buy low cost world etf.

Turn off default strategy in pensions. At age 54 they are slowing moving to cash.. You will be investing for another possibly 40 years. Look to switch to global equity.

 

[Bronte]

just wanted to get some thoughts and comments from the kind people here.

- why home improvements if selling to buy in Spain and small property in Ireland
- is your daughter saving, if not, given she’s working and at home, is it a good idea to help her buy a property
- She also should be contributing to her board and lodging, for good habits, you could save it without her knowing to gift her later
- you know about the tax free 3k?
- your wife seems low on pension, would she benefit from your pensions if you predecease her
- I suppose you both have Death in Service benefit? Have you life insurance, though given the assets and stage of life might not be needed
- your pensions should be an amount you’re comfortable to live on
- is your company the type to push you out the door at 60
- what’s the story with the foreign property
- Spain is too hot for 4 months, good for the winter
- think wisely on tax when deciding where you’re tax resident
- As an EU citizen you’re entitled to Spanish healthcare, but be careful as regards VHI rules, for private healthcare if leaving Ireland.
- wills made?

So far my gut feeling has been to leave the UK Defined Benefit pension where it is but should I consider moving to EUR and consolidating?

Nice to have different sources in different countries.

Your UK state pension, I read somewhere that UK pensioners who retire abroad lose inflation rights in relation to state pensions. Something to double check the rules on.

 

[Brendan Burgess]

Number and age of children: one (26)

Cash (me): €50k
Cash (spouse): €100k
Defined Contribution pension fund: see below
Company shares: $250k (~€220k)

Daughter working but still living at home due to high cost and competition for rentals in Dublin. I’m considering a gift / early inheritance to get her started on the property ladder.

Normally, the advice to clear the mortgage would be correct. I don't think it is in this case.

Your priority should be to help your daughter get on the housing ladder. You have €370k in liquid assets. You reduce this to €280k if you pay off your mortgage.

What is your daughter's income? What is her likely income? Will she get a mortgage? How much would a property cost?

I would suggest that you give her a mortgage to buy a home for herself. That is a full legally binding mortgage. And she must repay it. The rate can be favourable.

If she wants to buy something more expensive, it becomes a problem. The bank won't give her a mortgage unless you give her a gift and I don't think you should gift her that amount. This would be particularly important if she buys the property jointly with a partner.

I am not suggesting that she has to buy a property now. But you should be talking to her now and planning for her to get on the property market when she is ready. You could make it conditional on her saving up €50k.

 

[Frasier Crane]

Could you elaborate on Pension 4? Is that effectively a DB pension of €12k per annum payable @65 or something else?

It's a life-savings / insurance product that at maturity (retirement age) converts into a lifetime monthly annuity. I contracted this over 30 years ago but can't find any of the paperwork. The figure I quoted is from memory but could actually be slightly higher - banks were offering good deals with high interest rates at the time. Trying to get actual details from the provider is easier said than done.

Also, do you intend to retain the foreign property for the foreseeable future?

No. If we decide to relocate to Spain we wouldn't move into this property. It's been appreciating in value and offsetting the running expenses but , given how little we use it, I'm leaning towards selling it and keeping the proceeds invested in Spain in a more liquid form should we decide to buy something else.

 

[Frasier Crane]

All very good comments - thank you!

- why home improvements if selling to buy in Spain and small property in Ireland

Because for now we're still living here. I understand things would be easier if we had a firm decision one way or another.

- is your daughter saving, if not, given she’s working and at home, is it a good idea to help her buy a property
- She also should be contributing to her board and lodging, for good habits, you could save it without her knowing to gift her later
- you know about the tax free 3k?

Yes, she is a disciplined saver.

- your wife seems low on pension, would she benefit from your pensions if you predecease her

Yes.

- is your company the type to push you out the door at 60

My company is the type that could push you out the door from one day to the next regardless of age. I feel my skills are currently in demand but if the reason for being pushed out is a downturn in the tech sector then who knows how easy it'll be to find another job aged 55+

- think wisely on tax when deciding where you’re tax resident

Yes, that is another complicating factor.

Your UK state pension, I read somewhere that UK pensioners who retire abroad lose inflation rights in relation to state pensions. Something to double check the rules on.

I think it depends on the country. Pensioners residing in the EEA and a few other specific countries retain the index-linked feature.

 

[Frasier Crane]

I would suggest that you give her a mortgage to buy a home for herself. That is a full legally binding mortgage. And she must repay it. The rate can be favourable.

If she wants to buy something more expensive, it becomes a problem. The bank won't give her a mortgage unless you give her a gift and I don't think you should gift her that amount. This would be particularly important if she buys the property jointly with a partner.

I am not suggesting that she has to buy a property now. But you should be talking to her now and planning for her to get on the property market when she is ready. You could make it conditional on her saving up €50k.

OK, so you are talking about a personal / private mortgage. I hadn't considered that option.

My back of the envelope calculation was that between her savings (~€50k), the mortgage she can get (prob. €150k tops) and some help from me, we might just about stretch to an apartment like the ones she's currently looking at renting for nearly twice the amount of what the mortgage would cost her. Even if her longer term future in Dublin is uncertain beyond the next 4-5 years it might still be a sensible financial arrangement.

 

[Brendan Burgess]

I recommend to people who want to buy an apartment for their child, to give them a mortgage instead. It makes the child more responsible. It protects the parents if their financial circumstances decline. And if the child gets into a relationship which subsequently breaks down, then, the parents' interest is protected. (I have seen such an informal loan to a couple claimed as a gift when the relationship subsequently broke down.)

It makes no sense to rent if you can buy. Even for 5 years.

If she gets a mortgage, you won't be able to give her a mortgage as well. It would have to be documented as a gift.

 

[Sarenco]

Between your DB pension, your deferred annuity, your UK state pension entitlements and your (partial) Irish state pensions entitlements, it looks like you will have an income of around €72k from 66, assuming you retired tomorrow.

Obviously that’s taxable (and I’ve no idea how that would be taxed in Spain) but regardless that looks very comfortable to me.

Point to check - are the DB pension and deferred annuity index-linked?

Outside of that, between your cash savings, DC pensions, company shares and foreign property, it looks like you have around €837k of assets (leaving aside the equity in your home).

That should be more than enough to bridge you to 66 if you were to retire tomorrow.

 

[Sarenco]

So, big picture, I agree that you are in a very comfortable position and definitely have options.

We could get into the weeds on asset allocation, etc, but I think you have a couple of pretty big life decisions to make first.

Firstly, do you see yourself retiring in Ireland or Spain? I think you should commit to one or the other and plan accordingly.

Secondly, it looks like your daughter is just about ready to fly the coup. Again, I think you should decide whether (and how much) you are going to gift her to help her launch and build that into your plans.

Best of luck.

 

[Frasier Crane]

Point to check - are the DB pension and deferred annuity index-linked?

The DB pension is. The deferred annuity isn't, but there's an option to rescue the accumulated pot as a lump sum on maturity and invest elsewhere. I'm trying to get the actual figures from the provider.

Outside of that, between your cash savings, DC pensions, company shares and foreign property, it looks like you have around €837k of assets (leaving aside the equity in your home).

That should be more than enough to bridge you to 66 if you were to retire tomorrow.

This I'd like to understand a bit more. Can you expand a bit on what you mean or what that could look like?

We could get into the weeds on asset allocation, etc, but I think you have a couple of pretty big life decisions to make first.

Agreed. I'm conscious we currently have too many variables and moving parts.

 

[Sarenco]

Well, crudely €837k divided by 12 (the gap between your current age and 66) gives you just short of €70k per annum.

I appreciate that there are undoubtably some unrealised capital gains in there that will be taxable.

 

[Frasier Crane]

Just want to say thank you to everyone for your comments. I appreciate my situation is contingent on some key life decisions but you've given me very good pointers and food for thought, which is what I was after.