Moneymakeover Mid 30s Couple looking for financial advice for the future

[Kevin198823]

Your age: 38
Your spouse's age: 36
Number and age of children: None at present but hopefully 2 very soon


Income and expenditure
Annual gross income : €78,500
Annual gross income of spouse/partner: €66,677
Family Trust Net Income: €18,000

Monthly take-home pay: €9,434

Type of employment - Employee
Employer type: I am with a private company and my wife is the public sector


In general are you:
Trying to save approximately €1,500 but we are still completing final renovations on our house which we bought 2 years ago


Summary of Assets and Liabilities
Family home value: €700,000
Mortgage on family home: €520,000

Cash: None

Family home mortgage information
Lender : AIB
Interest rate :3.2%
Type of interest rate: fixed for the next 4 years

Remaining term: 28 years
Monthly repayment: €2,340

Other borrowings – car loans/personal loans etc

No car loan at present we both drive older cars.
We intent to buy new cars (not brand new) in the next two years repayments could be €400 per month for each car, total €800 per month

Pension information

Value of pension fund:
Just started my PRSA this year so very little in the pot.
My PRSA contribution €585 per month
Employer contribution (3% of gross) - €196 per month
I also have a CWPS
My Contribution €89 per month
Employers contribution €97 per month

My Spouse has the Single Public Service Pension Scheme with €14,000 in the pot.
Her employer contributions is €254 per month, she has not started any AVC yet.


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

What would our best course of action for going forward? Should we put more into our pensions or try to pay off our mortgage. Any other advice is welcome. Thanks in advance.

 

[Protocol]

My Spouse has the Single Public Service Pension Scheme with €14,000 in the pot.
Her employer contributions is €254 per month, she has not started any AVC yet.

Just so you are absolutely clear, public service pensions are unfunded, so there is no "pot".
Contributions by employees are unrelated to future benefits.

There are no employer contributions, so I don't understand the reference to €254 per month?

 

[CharlieMac]

She's been paying €254 per month in to the single pension scheme for the last 4 and a half years maybe?

 

[Duddaa]

When you say two soon is that twins? What's the plan for maternity? Will your wife be off say a whole year? Babies coat a lot and you'll need two of a lot of things.
I'd be thinking about that and more immediate shorter term than longer first

 

[Brendan Burgess]

Your age: 38
Your spouse's age: 36

Mortgage on family home: €520,000

We intent to buy new cars (not brand new) in the next two years repayments could be €400 per month for each car, total €800 per month

My PRSA contribution €585 per month

You are relatively young so you have plenty of time to build up your pension.

You need new cars and they will be expensive loans. Effectively, you will be borrowing at car loan rates to make pension contributions.

This makes no sense, especially when you already have a high mortgage in terms of Loan to Value and Loan to Income.

So don't make any pension contributions other than the amount needed to be matched by your employer.

Save up the cash to reduce the amount you need to buy a car. And even then, I suspect that those savings will be eaten up by the new arrivals.

 

[Bronte]

Trying to save approximately €1,500 but we are still completing final renovations on our house which we bought 2 years ago

Your summary doesn’t give us a full picture. What renovations? How much?

Cash: None

So where is the 1500 going?

Monthly take-home pay: €9,434

What is this being spent on?

Any other advice is welcome.

Can’t give proper advice as you’re missing proper data on expenditure

 

[niceoneted]

I’m curious to know where €7k a month approx is going once your mortgage is paid?

 

[Kevin198823]

She's been paying €254 per month in to the single pension scheme for the last 4 and a half years maybe?

Yes that is correct

 

[Kevin198823]

When you say two soon is that twins? What's the plan for maternity? Will your wife be off say a whole year? Babies coat a lot and you'll need two of a lot of things.
I'd be thinking about that and more immediate shorter term than longer first

We hope to have a baby in the next year and then another one the following year

 

[Kevin198823]

You need new cars and they will be expensive loans. Effectively, you will be borrowing at car loan rates to make pension contributions.

This makes no sense, especially when you already have a high mortgage in terms of Loan to Value and Loan to Income.

Would the best thing to do be save as much up for a car to reduce the loan value and also try to pay down the mortgage?

 

[jpmackey]

Don’t spend €800 per month on cars.

 

[Brendan Burgess]

Would the best thing to do be save as much up for a car to reduce the loan value and also try to pay down the mortgage?

The best thing to do is to save up as much as possible to reduce the loan value of the car.

But they should not pay down the mortgage until they have cleared both car loans which will have a far higher interest rate.

 

[Premos]

How old are your current cars? Can one be bought first (with mostly savings) and the next one later a couple of years when the first one is paid. If maternity leaves are on the cards, that could mean less commute.

 

[Fibbernacci]

I know there is some advice about not paying too much into pensions now but it's also worth thinking long term about how impactful lifestyle inflation can be. You might want to consider automating higher payments now because 1/ the impact on your eventual pension will be much greater due to more compounding years and 2/ you will adapt your spending habits before lifestyle inflation gets a chance to set in.

 

[Kevin198823]

I’m curious to know where €7k a month approx is going once your mortgage is paid?

House renovations is approximately €2,000 a month which we are doing bit by bit. This will all be finished in the next 12 months. We live off €3,000 per month (all bills/ insurances €920, gym €120, medical/ personal care €260, health insurance €270, groceries €300, €1,200 entertainment/ holidays), we both try to save €1,600 per month but this has been depleted with numerous weddings abroad. My pension €350.

 

[Kevin198823]

How old are your current cars? Can one be bought first (with mostly savings) and the next one later a couple of years when the first one is paid. If maternity leaves are on the cards, that could mean less commute.

I think we will do this. One car is 2015 (which needs a lot of work) and the other is 2014. If we save for one car and try to buy it with as much cash as possible and then save for the other. We are looking to buy an EV car for approx €25,000 after the house renovations. This will also save on fuel costs.

 

[Kevin198823]

I know there is some advice about not paying too much into pensions now but it's also worth thinking long term about how impactful lifestyle inflation can be. You might want to consider automating higher payments now because 1/ the impact on your eventual pension will be much greater due to more compounding years and 2/ you will adapt your spending habits before lifestyle inflation gets a chance to set in.

Yes I agree but would like to simultaneously pay down the mortgage and I am trying to find the right balance. We can pay off 10% per year at no additional costs.

 

[Fibbernacci]

We can pay off 10% per year at no additional costs

Do you intend to move and take a new mortgage in the future? Long term you'd stand to lose significantly compared to pension funding by overpaying mortgage instead.