Looking to figure out how best manage finance/debt to hopefully retire early

[getoutearly]

Personal details

Age: 45

Spouse’s/Partner's age: 46
Number and age of children: 2 children (7 and 9)

Income and expenditure
Annual gross income from employment or profession: 145k (including bonus) - private sector
Annual gross income of spouse: 40k - public sector (part time - will return to full time in a couple of years and return to 60ish k

In general are you: Saving


Summary of Assets and Liabilities
Family home worth: €700k with a €130k mortgage
Cash of €180k
Defined Contribution pension fund: €600k - spouse has AVC's - current value 50k
Company shares and ETF's: €70k
Buy to Let Property worth €310k with mortgage of €180k - being sold currently which will produce cash of around 140K


Family home mortgage information

Lender: BOI
Interest rate: 3% variable

Other borrowings – car loans/personal loans etc
No other borrowings

Other savings and investments:
Do you have a pension scheme?

Me: 600K in pension fund - employer contributing 8%, I'm contributing 20%
Spouse: 50k in AVC's
70k in individual shares and ETF's

What specific question do you have or what issues are of concern to you?
In the short term I'd like to make the best decision around available cash currently held and coming due to the sale the BTL property. I'm concerned inflation will erode the spending power.
Should I pay my PPR mortgage? Conscious there are available deposit rates with higher interest than my mortgage
What is the best home for excess cash generated?


In the medium to long I'd like to retire early (early 50's if possible) and perhaps change to a different role which maybe lower paid but offer a better work/life balance. Should get a professional wealth manager to manage excess cash (e.g Fisher) or buy funds/shares directly to save on fees.

 

[RedOnion]

Conscious there are available deposit rates with higher interest than my mortgage

Not net of tax.

Me: 600K in pension fund

Before you think of any other investments, what's your pension actually invested in? Is it 100% global equities, or is there a bond component?

 

[ClubMan]

Worth reviewing this - although if your timeframe is longer than just a few years you might want to look at something higher risk/volatility/reward than deposits for some of your money.

Best Buy - Savings Best Buys

Savings Best Buys: There are 3 savings best buy threads on AskAboutMoney that are updated frequently. Instant Access and Notice Accounts - Lump sum variable rate savings. Fixed Term Deposits - Fixed Lump Sum Term Deposits from a few months to a few years. Regular Savings - Smaller sum...

www.askaboutmoney.com

 

[getoutearly]

Not net of tax.


Before you think of any other investments, what's your pension actually invested in? Is it 100% global equities, or is there a bond component?

I didnt consider the tax element. Good point

Pension is 100% in equities.

 

[getoutearly]

Worth reviewing this - although if your timeframe is longer than just a few years you might want to look at something higher risk/volatility/reward than deposits for some of your money.

Best Buy - Savings Best Buys

Savings Best Buys: There are 3 savings best buy threads on AskAboutMoney that are updated frequently. Instant Access and Notice Accounts - Lump sum variable rate savings. Fixed Term Deposits - Fixed Lump Sum Term Deposits from a few months to a few years. Regular Savings - Smaller sum...

www.askaboutmoney.com

Thanks. I've reviewed those alright but wasnt sure if deposits was the way to go but take your point its relative to the timeline. If I could retire in 10 years I'd be happy.

 

[RedOnion]

In general are you: Saving

Sorry, another question. Roughly what's your saving rate per month?
If you paid off mortgage fully, what would it be?

Or to turn the question on its head, have you ever thought about how much you'll need per year to live on if you give up work?

 

[ClubMan]

You're effectively borrowing at 3% to put €130k on deposit at presumably a much lower rate. That doesn't make sense. Probably better to clear the mortgage and you'll still have €50k spare.

 

[ClubMan]

You can get tax relief on up to 25% of your gross so maybe look into increasing your current 20%? (I'm assuming that the employer 8% is ignored for the purposes of tax relief).

Your spouse might want to clarify their likely PS pension benefits and what might be possible to increase this - e.g. buying back service if applicable, increased AVCs. There are some excellent threads here about public service pension issues that might be worth checking out.

 

[Sarenco]

Here’s what I would do in your shoes (you’re doing great BTW):

1. Pay off your mortgage first thing tomorrow and cancel your mortgage protection policy.

2. Increase your pension contributions to 25% of €115k.

3. Check what fees you are paying on your pension and move if necessary. Stick with an allocation of 100% to a global equity tracker.

4. When the proceeds of the rental sale land, stick with cash but become a “rate tart” - hunt down the best interest rates available.

5. Investigate whether there is any scope for your spouse to purchase notional service.

Hope that helps,

 

[ClubMan]

Should get a professional wealth manager to manage excess cash (e.g Fisher)

I'm not sure that this is necessary or desirable.
If you want to invest some of the spare money in equities just do it yourself.
If you don't want to get into selecting and managing individual shareholdings then maybe consider something like an already diversified conglomerate and buy that and just sit on it for the next decade or more.
E.g. Berkshire Hathaway or one of the similar "baby" Berkshires. Many of these also don't pay dividends which simplifies tax matters.
Direct shareholdings are lower cost and more tax efficient than indirect shareholdings like unit linked funds.

 

[RedOnion]

I'm with @Sarenco on this. Keep it simple.

You don't need to take risks outside your pension to 'maximise' wealth. At 45 you've enough cash to pay off your mortgage and fully fund 3rd level education for your children in 10+ years. These are life goals for most people.

You've a pension pot of 600k, with an additional 40k being added annually.
In 10 years, without any investment growth, you'll have a million in your pension. And your spouse has a separate pension.

Your biggest enemy to retiring early is the risk of lifestyle creep, and spending because you have the money.

 

[getoutearly]

Sorry, another question. Roughly what's your saving rate per month?
If you paid off mortgage fully, what would it be?

Or to turn the question on its head, have you ever thought about how much you'll need per year to live on if you give up work?

I'm saving around 2K per month, should be able to live on roughly 50-60k in todays money if I give up work

 

[getoutearly]

You can get tax relief on up to 25% of your gross so maybe look into increasing your current 20%? (I'm assuming that the employer 8% is ignored for the purposes of tax relief).

Your spouse might want to clarify their likely PS pension benefits and what might be possible to increase this - e.g. buying back service if applicable, increased AVCs. There are some excellent threads here about public service pension issues that might be worth checking out.

For the last couple of years I've did a one up top up to 25% but agree it makes sense to do this as a formal arrangement. Agree regarding my Spouse, I've asked them to raise this with their union and pension admins to see what the art of the possible is here

 

[getoutearly]

Here’s what I would do in your shoes (you’re doing great BTW):

1. Pay off your mortgage first thing tomorrow and cancel your mortgage protection policy.

2. Increase your pension contributions to 25% of €115k.

3. Check what fees you are paying on your pension and move if necessary. Stick with an allocation of 100% to a global equity tracker.

4. When the proceeds of the rental sale land, stick with cash but become a “rate tart” - hunt down the best interest rates available.

5. Investigate whether there is any scope for your spouse to purchase notional service.

Hope that helps,

Thanks good adviser here, my pension is in my employers company scheme so don't have have control of the fee's etc. Advice above looks sound however - thanks for that

 

[Farma1]

I have done similar to what you are wanting to do and would agree with Sarencos steps - along with having a clear forward view of your spending - both day to day and capital - e.g. What major house repairs, car replacements, kids college? will you need in the future as well as the 60k living expenses.

Also do you want to stay in your current home - that is a good chunk of your wealth which if you want to stay in, doesn't really count towards your retirement pot, but if you want to downsize can count.

You indicate that you'd like to cut back in 5-10 years. You have a good base (pension well built up and added to every year, good house mortgage free) and you will significantly grow wealth over coming years if you stick at 185k combined earnings. Just simply by maximising the pensions and regularly investing in a balanced portfolio to give you dollar cost averaging.

Personally i found that now I've sorted the work-life balance and got to 2/3 days a week my desire to retire completely has disappeared - I can do all the things I wanted to do, have much more time with the kids and am making the most of a really important stage of life. Cutting down in your early 50s and working part time after that is an attainable goal for you.

 

[getoutearly]

I have done similar to what you are wanting to do and would agree with Sarencos steps - along with having a clear forward view of your spending - both day to day and capital - e.g. What major house repairs, car replacements, kids college? will you need in the future as well as the 60k living expenses.

Also do you want to stay in your current home - that is a good chunk of your wealth which if you want to stay in, doesn't really count towards your retirement pot, but if you want to downsize can count.

You indicate that you'd like to cut back in 5-10 years. You have a good base (pension well built up and added to every year, good house mortgage free) and you will significantly grow wealth over coming years if you stick at 185k combined earnings. Just simply by maximising the pensions and regularly investing in a balanced portfolio to give you dollar cost averaging.

Personally i found that now I've sorted the work-life balance and got to 2/3 days a week my desire to retire completely has disappeared - I can do all the things I wanted to do, have much more time with the kids and am making the most of a really important stage of life. Cutting down in your early 50s and working part time after that is an attainable goal for you.

Thanks Frama1, good to hear from someone in a similar position.

On the spending side of things, I might be best creating spending model to figure out what I need and to validate my gut here. I needs to take kids education into account for sure but we are putting away the children allowance into a separate fund (which I forgot to mention above) to help with this.

In terms of my current home, sometime in the distinct future there maybe opportunities to downsize alright, there is no significant capital improvements required and I've done a fair but of work over recent years.

In terms of work life balance I'd like to transition to a more sustainable role ideally part time similar to yourself but fear it might be difficult to find one. However, I feel its worth putting some effort into researching this a little further and positioning/educating myself to take advantage if one does come along.

 

[ClubMan]

I needs to take kids education into account for sure but we are putting away the children allowance into a separate fund (which I forgot to mention above) to help with this.

Be careful of silo thinking and treating different pots of money as somehow separate. You need to consider and manage your overall net worth holistically. Silo thinking often leads to mistakes in getting the best results. E.g. I can't touch my emergency/child education fund even though I have a car loan at 10%. (Not the case here, but hopefully you get the idea).

 

[RedOnion]

For the last couple of years I've did a one up top up to 25%

Your earnings are more than 115k, so tax relief is capped at 25% of 115k (I assumed you are contributing 20% of 145k, which is almost identical).

my pension is in my employers company scheme so don't have have control of the fee's etc.

This is not the complete picture; you have the option of putting your AVCs into an AVC PRSA for example. Only your mandatory contributions must go into the occupational pension scheme. You should understand your pension fees, and investment options, and compare to other options for the AVCs. You may well find that what you have is the best you'll get, but you should confirm.

 

[getoutearly]

Your earnings are more than 115k, so tax relief is capped at 25% of 115k (I assumed you are contributing 20% of 145k, which is almost identical).


This is not the complete picture; you have the option of putting your AVCs into an AVC PRSA for example. Only your mandatory contributions must go into the occupational pension scheme. You should understand your pension fees, and investment options, and compare to other options for the AVCs. You may well find that what you have is the best you'll get, but you should confirm.

Didn't know that, thanks. I'll look into it.

 

[ClubMan]

Your earnings are more than 115k, so tax relief is capped at 25% of 115k (I assumed you are contributing 20% of 145k, which is almost identical).

Good point - missed that!

This is not the complete picture; you have the option of putting your AVCs into an AVC PRSA for example. Only your mandatory contributions must go into the occupational pension scheme. You should understand your pension fees, and investment options, and compare to other options for the AVCs. You may well find that what you have is the best you'll get, but you should confirm.

Ditto - good point.