Single parent, pension and investment choices

C

Castlelyons

Registered User
Messages
17
Age:
51
Spouse’s/Partner's age:
NA

Annual gross income from employment or profession:
E90,000 plus 15,000 bonus,
Annual gross income spouse
NA

Type of employment:
Private

Expenditure pattern:
More of a spender than saver

Rough estimate of value of home
E300,000
Mortgage on home
11,000
Mortgage provider:
PTSB
Type of mortgage: Tracker, interest only, fixed rate
Tracker
Interest rate
0.8
Mortgage is paid in full in next year or so and this frees up 700+ a month

Other borrowings – car loans/personal loans etc
2000 car loan

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

Savings and investments:
E45,000 on deposit savings, some of which I might need for house maintenance, some of which I'd like to invest with medium risk

I save 150 a month to credit union.

Do you have a pension scheme
Pension 1.pension from old job is 108,000

Pension 2. Current pension is 10,500
I pay 6% - 5400 anualy
Employer pays 8% - 7,200 anualy

Do you own any investment or other property?
No.

Ages of children:
8, 11

Life insurance:
Yes.
Death in service salary x4
Dependants pension
Disability insurance benefit of 2/3 salary

What specific question do you have or what issues are of concern to you?
I've never been good with money and have always lived pay check to pay check and borrowed from Peter to pay Paul but with a pay increase and a recent redundancy lump sum plus my mortgage soon to be paid of, my income is starting to exceed my out goings, something I though would never happen and I'd like to maximise my finacial position for the future instead of fleeting it away as who knows what's around the corner

I'd like to start investing in something ready to go and easy to understand. Medium risk. Would like suggestions.

I'd like to start increasing pension contributions, making AVCs. I understand from other posts the general advice is to max out pension contributions for my plus 50 age category, I'm a bit uneasy with putting this much money out of reach, but this is probably the advice?

One of the things someone suggested to me was to get the tax free lump sum from my old pension, move the rest to an AVC and put the tax free lump sum in to my new pension including adding the tax savings in subsequent years.
Would be concerned that with AVC I would have to start taking 4% at age 61 when I might still be working full time with kids in college at this point, I probably will not be retired at 61, so concerned about tax implications there. My old pension is growing OK wirh Mercer, so maybe should just leave well enough alone.

As a single parent I have the SPCCC tax credit, but feel disadvantaged as a single parent I think the credit should be better, am I missing out on anything here?, are there other benefits I should claim as a long parent. I have children's allowance.

Any suggestions on how to invest any excess income
 
Why would you have €45,000 on deposit and a €2,000 car loan plus an €11,000 mortgage?

Forget the fact that the latter is a tracker…those should be repaid immediately!

You might be getting mixed up about the ‘age 61’ bit. When you take your retirement benefits and have set-up an ARF (post retirement pension basically), you’re forced to withdraw 4% a year. But if you’re still working, you won’t have done that, so no 4% drawdown. Perhaps you mean if you follow that advice about accessing the €108,000 pension? Don’t basically…I don’t agree with that recommendation to collapse your “old” scheme. That will definitely draw the rump (i.e. 75%) into the 4% drawdown territory at age 61. Keep them separate and leave that be, but look at the annual costs and how it’s invested. I don’t think you need that money now.

The key question is how much do you need for the house maintenance? Subject to the answer to that question, my strong sense is that all of your €850 monthly surplus should go into your pension. Taking salary and bonus, you’ve scope to make AVCs that would cost you €1,260 after tax each month. So that would mean finding another €410 per month; how much is the car loan costing?

“Maintenance” does sound cheap enough, so potentially you may have enough with the €45,000 to do a few things:

- Clear the €13,000 of debt
- Make a retrospective contribution for 2021; when did you commmence this employment and how much did you earn in 2021?
- Keep an emergency fund of 3-6 months living expenses in cash

One further question; your bonus of circa €7,500 net; is that included in your cashflow details? i.e. is it ‘extra’ in terms of your ability to save €850 per month once the mortage is cleared?

In terms of concerns about “putting the money out of reach”, that argument is sometimes advanced by people in their 20s and 30s; I’d argue it’s nonsense then, and for a 51 year old it just shouldn’t be a factor. The benefits far outweigh the relative lack of accessibility, but as you can see with the other scheme, in your 50s all you need to do to access it is change jobs. But why would you want to if you’re mortgage/debt free?!

‘Medium Risk’ is a pretty broad church; what are the investment options available on the two pension schemes? Maybe park any thought of investing personal monies until you’re maxing out the pension bit…
 
Last edited:
Thanks for response.
The bonus is extra.
Commenced new employment in March 21. Previous salary was 69,000
Earnings for 2021 are 85,000 income
plus severance payment 65,000.
So ya lot of tax paid in 2021, a retrospective pension contribution is probably advisable..
And clear remaining debt..
 
As Gordon says, pay off the car loan immediately. That's the ultimate no-brainer. Mortgage? I'd disagree with Gordon on this one. "Investing" 11k into your mortgage produces a return of 0.8% pa. Put the 11k into your pension instead.

Your overall financial position is good. Healthy salary and bonus, house almost paid for and money in the bank. But your pension needs serious attention. The good news is you have time to do so, being about 15 years out from retirement. You have already accumulated funds of over 100k and you're adding 12.5k each year. When you're 66, your fund will be approximately 300k, which sounds good, but is nowhere near enough to sustain the income level you're currently at. A 4% drawdown yields only 12k pa.

You can contribute up to 30% of salary (including bonus) and you should really be aiming to get close to this figure. That would work out at an extra €25k pa from you, or just over 2k per month. After tax relief at 40%, that's 1200 per month. Your mortgage payment and car loan (I'm guessing 200pm) would go a long way towards making up that. You could also use your bonus to make up the difference.

If you max your pension contributions, that will bring your fund up to 700k plus growth at age 66. With a fair wind, and possibly increasing further contributions when you get to 55 and 60, you could hit 900k or more at age 66. That plus the state pension should see you fairly ok.

You will also need to think about 3rd level fees and costs in 10 years time but that's another story!
 
Castlelyons said:
Thanks for response.
The bonus is extra.
Commenced new employment in March 21. Previous salary was 69,000
Earnings for 2021 are 85,000 income
plus severance payment 65,000.
So ya lot of tax paid in 2021, a retrospective pension contribution is probably advisable..
And clear remaining debt..
Click to expand...
Okay.

- I’d make the maximum AVC for 2021.
- I’d clear the car loan.
- I’d clear the mortgage (because it’s not an ‘either/or’ of mortgage vs pension; you can do both)
- I’d start making the maximum AVCs for 2022 now and until retirement
- I’d keep 3-6 months’ household expenditure in cash

You can do all of this between your cash reserves, the €850 a month that you planned to save and the €7,500 a year net from your bonus.

Pension is the elephant in the room.
 
If OP can clear the mortgage AND max out pension contributions, yes, that's the way to go. If it's a choice because of other expenses, eg house renovations, then go for the pension.
 
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