Moneymakeover Money Health check - reduce earnings over time and retire at 60?

Age: 45, single, no dependents
Spouse’s/Partner's age:

Annual gross income from employment or profession: 135k and up to 50k bonus
Annual gross income of spouse: n/a

Monthly take-home pay 6k

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

In general are you:
(a) spending more than you earn, or
(b) saving? Saving €1.5k a month; overpaying mortgage €500 a month (with lump sum overpayments of up to €20k per annum being contemplated, hence the post

Rough estimate of value of home €530k
Amount outstanding on your mortgage: €285k
What interest rate are you paying? 2%, 23yrs left but looking to pay it off before 60

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?

Savings and investments: state savings €150k; €20k for annual costs/ investment property working capital in BOI

Do you have a pension scheme? Yes, DC, current value €700k but in higher volatility equity / moderate to high risk portfolios; maxed out out on deductible contributions 10% monthly plus avc, ER also pays 20% in pa on basic salary
Do you own any investment or other property? Yes, worth c €330k, mortgage free, €20k rent pa

Ages of children:

Life insurance: 3x salary DIS from ER plus good income protection


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

I think I’m in pretty good shape but I don’t foresee me continuing in high pressure role (with related high DC contributions) past 52, I’d like to work from then til 60 in a job that would pay day to day living expenses but realise I won’t make major upgrades to pension pot in those years. I know state savings are high but see them as both hedge on high risk rated pension portfolio and also I have one eye on the fact I’ll likely have an inheritance tax bill of c€150k (at current rules) at some point (would prefer parents to live to 100 and spend it all but they have future proofed a house in Dublin and won’t be downsizing and spending it so will be left to myself and one sibling)

So questions - am I doing the right thing overpaying mortgage, if I start annual lump sums I could be done by 55, am I being too passive having such a large amount in state savings?
Will I need to stick with the high pressure job longer than I hope to have reasonable pension pot? I have calculated expected annual cost of living increased for higher health insurance and excluding mortgage to be €40 p annum post 60

So is this a correct summary?

So the first thing is to clear your mortgage with your savings.

If both of your parents are alive and healthy, you won't be inheriting the house for some years. So pay down the mortgage now. You will have it well cleared by the time you have an inheritance tax bill. And you can face that problem when you come to it.

I understand the emotional attachment to the family home, but you may well feel differently about it in 20 years. But even if you do decide to keep it, you should get rid of your investment property. You should not have €1.7m in property assets. That is too concentrated.

With €2m in assets and the state pension at say, 70, you probably could give up work now if you wished.

Of course, if you start a family, that wouldn't be nearly enough, unless your partner is also a high earner.

If you feel under pressure and in danger of burnout, then you should look at doing a less pressurised job now. If you are earning €185k a year, you could cut it back to a job earning "only" €100k a year.

Alternatively, you are in a very good position to take a complete career break. Take a year or two off. Enjoy life while you are young and healthy. Then return to the workforce later.

If this is a possibility, then do hold onto your savings, but put them in the stockmarket.

Brendan

The key point is that you are in a good financial position to do what you want.

Brendan

Thanks Brendan, table summary is broadly correct, I tend not to include the future inheritance value - but I know that’s inconsistent with taking account of the future liability. My concern is being asset heavy but will the current pension which might get to 1m by the time I reduce salary levels get me through

Why would you rely solely on the pension?
You will have two investment properties which you will get a rent from or which you will be able to sell.

And if all your "investments" are gone by the age of 80, you will be able to supplement your income by taking out a loan against your home.

Brendan

Position update and new query on renovation/mortgage

Mortgage will be cleared in the next 6mths and pension solid at €1m with maxed contributions continuing.

Now I’m looking at having to make a house move for family reasons in the next 12 mths. I’ll have c€750k equity and savings but that looks like it will buy me a house that needs extension/retrofit in my preferred area in Dublin (and I really don’t want to move again after this). I’m still in high paying roll so expect to get approval for c€300k mortgage at 2x income which is as much as I’d want to take on. So question is do I draw a mortgage for purchase (and possibly be less attractive than a cash buyer) and use savings for reno or could I pay full cash and get mortgage post purchase?

I feel long term if I’m a good position but just trying to navigate this unexpected cash flow need over the next few years

Brendan Burgess said:

Of course, if you start a family, that wouldn't be nearly enough, unless your partner is also a high earner

Click to expand...

2.1m?

Wouldnt be enough?

Nerak14 said:

Age: 45, single, no dependents

Click to expand...

Brendan Burgess said:

With €2m in assets and the state pension at say, 70, you probably could give up work now if you wished.

Of course, if you start a family, that wouldn't be nearly enough, unless your partner is also a high earner.

Click to expand...

At age 45, I doubt if €2.1m including the family home would be enough for a couple and children. But I did not do the calculations.

Nerak14 said:

So question is do I draw a mortgage for purchase (and possibly be less attractive than a cash buyer) and use savings for reno or could I pay full cash and get mortgage post purchase?

Click to expand...

If you own a mortgage-free home which requires €300k refurbishment, you might not be able to get a loan to do it. Or it might be more expensive than a home loan.

So take out your mortgage and buy your home and use your cash to refurb it. When the refurb is done, then pay any savings you have left over, off the mortgage.

I don't think that you will be that much less attractive than a cash buyer. After all, if you have €750k cash then you can close the sale if there is any problem with drawing down the mortgage.

Nerak14 said:

pension solid at €1m with maxed contributions continuing.

Click to expand...

Stop maxing pension contributions while you are in house buying mode. Resume after your house is bought and refurbed.

Do you still have the investment property?

You’re now 49yo right? With €1m in pension, maxed out AVC’s and no dependents, do you need the risk of an investment property anymore? You could take on a mortgage short-term to accommodate your move but sell up investment property in parallel and clear it from the proceeds.

conor_mc said:

You could take on a mortgage short-term to accommodate your move but sell up investment property in parallel and clear it from the proceeds.

Click to expand...

Very good point.
Moving house is very stressful. It's made a lot easier if you can afford to buy your new home without selling your existing house.

So if a combination of the sale of your investment property, your savings and a mortgage would allow you to buy without selling, you should do so.

Then sell your existing home and clear the mortgage.

Brendan Burgess said:

At age 45, I doubt if €2.1m including the family home would be enough for a couple and children. But I did not do the calculations.

Click to expand...

I woukd say it probably is enough but it woukd depend on lots of things including, but certainly not ltd to:
1. Number of kids
2. What is pension invested in i.e all equities and whats assumed grow rate (5%?).
3. Lifestyle, assume draw down (4%?).
4. Any big medical needs etc

Taking home out of it net assets are 1.8m approx? Looks very healthy for a 45 yr old with wife and 2 kids.

Even with two kids it would possibly be enough. Can assume partner has some modest income, say 30k? But even if not, might still be ok.

Nerak14 said:

I’ll have c€750k equity and savings but that looks like it will buy me a house that needs extension/retrofit in my preferred area in Dublin

Click to expand...

Question also on extension vs renovation - did you really just mean renovation? I doubt any regular-size house in Dublin requires extension for a sole occupant. Unless you have broader plans, e.g. a lone parent moving in for care purposes in the future?

jim said:

I woukd say it probably is enough but it woukd depend on lots of things

Even with two kids it would possibly be enough. Can assume partner has some modest income, say 30k? But even if not, might still be ok.

Click to expand...

Gut feeling isn't exactly a sound basis for making looking term plans for one's finances though?

I didnt say it was a gut feeling, its my view.

I don't understand the references to children or family on responders part. The poster is single

Whilst I understand the consideration, of course, i do believe it may have unnessesarilly confused and complicated what was otherwise a relatively straight forward question.

I agree with others above i.e that the OP could retire today if they wished to and with their net asset position they would be probably comfortable - even with a small family.