Priorities for Late 30s Onwards

W

wherefore

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Personal details

Age: 35
Spouse’s/Partner's age: 32

Number and age of children:
One child, 8 months old

Income and expenditure
Annual gross income from employment or profession:
Previously 56k basic, ~16k shares and bonuses
Now 85k basic, ~20k shares and bonuses

Annual gross income of spouse: 28k

Monthly take-home pay: ~6k on average going forward (my 4k after pension contributions plus partners 2k)
some of this is made up of company shares vesting at regular intervals that I sell as they become available and stock purchase plan that I contribute 10% of net pay to
and twice a year the company sells me shares at a discount (again, sell immediately)

Type of employment: both private

In general are you:
saving

Summary of Assets and Liabilities
Defined Contribution pension fund: €120k
Cash of €115k
Company shares : €45k (25k RSUs of which 8.5k to vest this year, 20k APSS scheme 6.5k to vest this year)


Family home mortgage information
No mortgage currently as we sold our home last year and relocated. The plan is to buy a place for ~€350k this year which will do us for many years to come.

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Pay off in full

Buy to let properties
None

Other savings and investments:
None

Do you have a pension scheme?
~120k in DC scheme. Work put in 8% so long as I put in 4%. I put in 16% AVCs to take me up to the max.

Partner has a small PRSA with a couple of grand in it that she's not contributing to currently as she's only back to work after having a baby but will probably start again. No company help from her side.

Other information which might be relevant

Life insurance:
3 x final salary lump sum
Spouse's Pension 20% of final salary
Child's Pension 6.67% of final salary per child up to three children
Additional Next years bonus (10k) + 4 weeks salary

Also have income protection 66% of salary less state disability.


What specific question do you have or what issues are of concern to you?
TBH, I thought we were doing well but when I see it all typed out I don't know either way! My partner lost her job at the start of covid and just started back again so
between that, selling the house, relocating and having the baby it's been quite a spendy year or two. We have historically been good at keeping expenses down but maybe could stand to refocus on this a bit as life gets back to normal.

Having just had a baby recently and gotten a significant uplift in my work package I want to do a bit of an assessment and see what should be the focus/targets for the next few years. I'm maxing pension contributions and am happy to keep doing so unless there's a reason not to.

My partner and I aren't yet married and I'm conscious of the fact that if we were I would be able to avail of some of her tax credits although I doubt the amount of money involved there is substantial.

I guess we will look at having a second child some time in the next two years and would likely have three in the long term.

We will be buying a house around the middle of the year. We have an arrangement in place to buy a suitable family home for 350k. In an ideal world we would try to get a mortgage of less than 60% to get the best rate but it might be a stretch. Is the biggest priority to get the mortgage down somewhere south of 60% (or lower) in the short term?

Obviously the kids' college will cost money down the line but it always feels to me like it makes more sense to smash the mortgage than have cash idling aside for that?

I would also be interested in opinions on whether it's worthwhile my partner investing some of her much smaller salary into her PRSA at the moment?

Ideally I would love to have the option to retire in my 50s if it was plausible.
 
First of all, get married. You are strangers in the eyes of the law and there's all sorts of tax complications involved.

This next piece of advice is recency bias, but get life cover for both of you and lots of it. Had a phone call from a retired clients yesterday who told me that his daughter in law dropped dead the previous week. She was 40 years of age and it was suddenly. Two young kids. Life cover isn't expensive.

Now you have a kid and plan to have more, there are huge demands on your money. A lot of posters here like to take an A or B approach. I opt for the A and B option.

First priority is your house. Save as much as you can for that. It is going to be a massive cost. Don't worry if you get a mortgage over 60%. Once you have an LTV < 60%, you can get the lower rate applied to your mortgage. You just need a valuation and they aren't expensive.

Your pension should always be ticking away in the background. You don't necessarily have to be maxing out each year but you did get a big pay rise, so you should be able to afford to make bigger contributions, especially after the saving for the house purchase is out of the way. Remember for your mortgage, you must show the bank you can afford the repayments through current saving levels.

Then there is future education costs. The earlier you start saving for this, the less it will cost you per month. You will also need to build up a cash fund that you can use for cashflow purposes if there is a big purchase.

Have good saving habits, live below your means and put those savings into capital markets and you'll be fine.

If you want to have the option of retiring in your 50's, you'll have to cut back on things and make sure you save that money instead. It's a big ask and not many people can afford to retire at that age (there is a 10 year span, which is a lot to work with).


Steven
www.bluewaterfp.ie
 
wherefore said:
Cash of €115k

No mortgage currently as we sold our home last year and relocated.
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Just curious, is the €115k the net proceeds of the sale or did you omit that?
wherefore said:
some of this is made up of company shares vesting at regular intervals that I sell as they become available and stock purchase plan that I contribute 10% of net pay to
and twice a year the company sells me shares at a discount (again, sell immediately)
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I presume that the income tax liabilities on these are being taken care of? Just so you're not storing up any tax issues to come back to haunt you later...
Steven Barrett said:
If you want to have the option of retiring in your 50's, you'll have to cut back on things and make sure you save that money instead. It's a big ask and not many people can afford to retire at that age (there is a 10 year span, which is a lot to work with).
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15?
Edit: oh, you mean 10 years between early retirement at age 50 and the more common retirement age of 60+?
 
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Thanks Steven, plenty to ponder there.

@ClubMan the €115k includes the net proceeds of the house.

Most of the tax implications of the different share schemes are taken care of at the time. With some of them there can be tax due on gains that isn't looked after automatically but I have access to an accountant to help me with filing a return every year so I think I should be all sqaure.
 
ClubMan said:
15?
Edit: oh, you mean 10 years between early retirement at age 50 and the more common retirement age of 60+?
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No, I meant the OP said he would like to have the option of retiring in his 50s. There's a big difference between age 50 and 59. 9 years more salary, more growth, more savings. If you worked out the numbers required for either age, they wouldn't be even close.
 
wherefore said:
With some of them there can be tax due on gains that isn't looked after automatically but I have access to an accountant to help me with filing a return every year so I think I should be all sqaure.
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Is that CGT in the case where you hold onto them after exercise/vest and sell later at a gain (or loss)? You seem to be selling immediately on vesting in all cases so CGT shouldn't be an issue? I totally agree with your approach because people who hold onto incentive stock in the company that they work for are putting at least two eggs (their salary and the stock) in one basket which is concentrating the risk.

BTW you seem to be doing ok to me just in case you were still a bit doubtful. :)
 
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Steven Barrett said:
First of all, get married. You are strangers in the eyes of the law and there's all sorts of tax complications involved.
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Noted :)

Steven Barrett said:
This next piece of advice is recency bias, but get life cover for both of you and lots of it. Had a phone call from a retired clients yesterday who told me that his daughter in law dropped dead the previous week. She was 40 years of age and it was suddenly. Two young kids. Life cover isn't expensive.
Click to expand...

Could you recommend some reading I might do on the level of life cover that's worth having? Assuming nobody dies before we are in the new house then mortgage protection would mean the house would be paid off and as it stands my partner (assume wife for simplicity for the moment) would get something like 430k (3x salary + 120k pension pot + shares/bonuses ~60k) plus 17k PA + 5.5k (per child) PA if I'm reading my work policy right. I thought that sounded like a lot but now you've held a lens up to it how long would that last in a really unforeseen circumstance?

But I have no idea what sort of number would be suitable to aim for here - any advice? I see from chill.ie at a quick glance 500k insurance with a 30 year term would be €340 PA.

Steven Barrett said:
First priority is your house. Save as much as you can for that. It is going to be a massive cost. Don't worry if you get a mortgage over 60%. Once you have an LTV < 60%, you can get the lower rate applied to your mortgage. You just need a valuation and they aren't expensive.
Click to expand...

Good to know re:getting the change of rate applied, thanks.

Steven Barrett said:
Your pension should always be ticking away in the background. You don't necessarily have to be maxing out each year but you did get a big pay rise, so you should be able to afford to make bigger contributions, especially after the saving for the house purchase is out of the way. Remember for your mortgage, you must show the bank you can afford the repayments through current saving levels.

Then there is future education costs. The earlier you start saving for this, the less it will cost you per month. You will also need to build up a cash fund that you can use for cashflow purposes if there is a big purchase.

Have good saving habits, live below your means and put those savings into capital markets and you'll be fine.
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Is there a particular vehicle that you would recommend for saving towards future education costs? I had invested in index funds in the past and am comfortable enough with the idea although at the time it was all US domiciled ETFs so the tax treatment was easier to take care of.

Steven Barrett said:
If you want to have the option of retiring in your 50's, you'll have to cut back on things and make sure you save that money instead. It's a big ask and not many people can afford to retire at that age (there is a 10 year span, which is a lot to work with).
Click to expand...

Let me just describe my naive thinking on this, so that in the likely event I'm totally working it out wrong someone can point it out for me.

I'm using an investment calculator to say that with 5% return rate (I believe inflation adjusted SNP500 50 year return is 5.4%), my 120k pension pot now if I max my contribution for the next 5 years would get to €289k, which would become €825k by 50 including increasing contributions to 25%. If I were to leave that pot to grow without contributions from there in ten years I would be 60 and it would be up to €1.7M. Now first I need to check that I'm right in thinking using an inflation adjusted growth rate means my purchasing power with those future amounts doesn't go down too much? If that's the case by my reckoning the gap to financial independence is what I do for money in that ten year span between 50 & 60. So I would need to be mortgage free (overpayment somewhere in the region of €700pm) and either create some passive income, a good sized cash reserve, work part time or some combination of the three.

As you say there's a big difference between jacking it in at 50 vs 55 vs 59 in that. Is my rationale here correct or am I making some basic error about how the pension will accumulate w.r.t inflation or anything else? If we leave out how feasible it is to overpay the mortgage, max pension contributions, pay college fees, build passive income/nestegg and live a fulfilling life for the next 20 years, would I at least land where I think I would if I did all that right? At least if I know the above is possible or not I can factor it into my thinking as the years go and big decisions crop up.
 
ClubMan said:
Is that CGT in the case where you hold onto them after exercise/vest and sell later at a gain (or loss)? You seem to be selling immediately on vesting in all cases so CGT shouldn't be an issue? I totally agree with your approach because people who hold onto incentive stock in the company that they work for are putting at least two eggs (their salary and the stock) in one basket which is concentrating the risk.

BTW you seem to be doing ok to me just in case you were still a bit doubtful. :)
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So some of the shares are bonuses that I put into APSS scheme and if I leave them there for three years I get the original amount tax free. Occasionally (unfortunately infrequent lately) the value of the shares goes up so while the original amount is tax free there can be CGT on the gain. I think I've only ever had this amount to a tiny tax bill as the amounts are low, the growth is poor and the €1270 allowance normally covers it.
 
Couple of thoughts, ensure you have a will and have a plan for what happens the child in the unlikely event of something untoward happening one or both of you. With a child, you should also be doing a full review of your life insurance position

Secondly, ensure you have both done tax returns and claimed back everything you can claim back.

Also review your health insurance and make sure it is the best package for a family, especially if another smallie is likely.
 
Peanuts20 said:
Couple of thoughts, ensure you have a will and have a plan for what happens the child in the unlikely event of something untoward happening one or both of you. With a child, you should also be doing a full review of your life insurance position

Secondly, ensure you have both done tax returns and claimed back everything you can claim back.

Also review your health insurance and make sure it is the best package for a family, especially if another smallie is likely.
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Thanks Peanuts. I'm actually calling to my solicitor on Friday on a different topic so I will talk to him about doing a will as well - I hadn't thought of it.

My company pays for my health insurance at the moment (and my partner and child) and the plan is pretty good, which is a nice position to be in.
 
Steven Barrett said:
Then there is future education costs. The earlier you start saving for this, the less it will cost you per month. You will also need to build up a cash fund that you can use for cashflow purposes if there is a big purchase.
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This is all excellent advice. I quibble only about the need to build up for future education costs.

You will still have an income when your kids are in college and you will be able to fund costs from that income. In the meantime a good strategy is to have mortgage paid down as much as possible by the time college comes around.
 
Hi wherefore,

Open a separate account for the children's allowance. Get it paid into that & forget about it. You'll have over 25k for each of them by the time they are 16...

Firefly.
 
Firefly said:
Hi wherefore,

Open a separate account for the children's allowance. Get it paid into that & forget about it. You'll have over 25k for each of them by the time they are 16...

Firefly.
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Hopefully not a deposit account?
If you're going to do this then if at all possible buy shares with it or otherwise invest it.
(Cue off topic discussion about how disgraceful it is that well off people get child benefit).
 
NoRegretsCoyote said:
This is all excellent advice. I quibble only about the need to build up for future education costs.

You will still have an income when your kids are in college and you will be able to fund costs from that income. In the meantime a good strategy is to have mortgage paid down as much as possible by the time college comes around.
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This highlights another point - I actually don't really have any idea what education costs are likely to be. What are we talking about in today's money currently does anyone have a ball park notion?
 
And also what you're talking about.
Crèche/playschool?
Private primary?
Private secondary?
College/university?
College accommodation?
Etc.
 
NoRegretsCoyote said:
This is all excellent advice. I quibble only about the need to build up for future education costs.

You will still have an income when your kids are in college and you will be able to fund costs from that income. In the meantime a good strategy is to have mortgage paid down as much as possible by the time college comes around.
Click to expand...
And if you don't have the mortgage paid down by the time college comes around, you have mortgage repayments and college fees coming out of cashflow.

If he put a few hundred away each month from now, capital markets will pay for some of the cost of college so he won't have a €4,500 lump sum coming out of cashflow.

He can both pay down the mortgage and save for education at the same time.

Steven
www.bluewaterfp.ie
 
Steven Barrett said:
If he put a few hundred away each month from now, capital markets will pay for some of the cost of college so he won't have a €4,500 lump sum coming out of cashflow.
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I disagree. Over a 20 year horizon overpaying on the mortgage will give a better expected return than investing in an equity product with fees and taxes.

OP could get into the habit of overpaying mortage by the cost of college for a few years when kids in late teens, then stop the overpayments when kids are actually in college.
 
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