Case study What financial changes could we make - youngest starting college?

J

Justaverage

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Personal details

Age:49
Spouse’s/Partner's age:51

Number and age of children: 2 ( 22 & 19 )


Income and expenditure
Annual gross income from employment or profession: 85k
Annual gross income of spouse: 140k

Monthly take-home pay €7k

Type of employment: e.g. Civil Servant, self-employed. Private Sector - PAYE

In general are you:
(a) spending more than you earn, or
(b) saving? Maybe 2k per month


Summary of Assets and Liabilities
Family home worth €600k with a €42k mortgage
Cash of €14k
Defined Contribution pension fund: €465k
Company shares : nil
Buy to Let Property - none


Family home mortgage information
Lender : Pepper
Interest rate 4.83%
If fixed, what is the term remaining of the fixed rate? Tracker 15years remaining - we overpaid over the years so it’s low now.

(No need to tell us the monthly repayments or what term is left)

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?


Buy to let properties
Value:
Rental income per year:
Rough annual expenses other than mortgage interest :
Lender
Interest rate
If fixed, what is the term remaining of the fixed rate?

Other savings and investments:

Do you have a pension scheme? €465k

Do you own any investment or other property? None

Other information which might be relevant

Life insurance: Yes ; both through work + me €300k fixed term another 7 years left on that policy.


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

I think we are ok position and probably average … would folks tend to agreed or not ? Youngest starting college can cover that from regular income.
 
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Just a remark I read today in an article that the average assets for household headed by an over 55 is more than 700k. Based on that, you are doing better than average. However as mentioned above your income is also way above average
 
Apologies my question wasn’t very clear … basically from the position we are currently at would it be reasonable to say that if we continue adding to pension at max allowed levels and finish out the mortgage obviously that all we really need to achieve … I see lots of posters on here who seem to have @ our age many different assets , investment property / separate share portfolios etc , by comparison we seem to be following a fairly basic model of at retirement age own your own home outright and have a reasonable pension pot ( I know that’s a matter of opinion but to my mind any couple retiring with a pension pot in excess of 1m will likely be above average in terms of overall pension provisions ).
 
Mortgage rates are high now, so it makes sense to overpay your mortgage and clear it as quickly as possible.

I think that I would probably halt AVCs on the pension and clear down the mortgage instead.
It's really just a question of timing.
When the mortgage is cleared, you can put the mortgage payments you would otherwise have made into your pension.

On the one hand you have a comfortable mortgage level, so you don't need to do this.
On the other hand, your mortgage is expensive, so I think paying it off is better value.
By clearing your mortgage, you will no longer have mortgage payments, so you are more flexible. You can use the repayments saved to pay for education or to contribute to a pension as you see fit.

But overall, it's not a huge issue either way.

Brendan
 
Thanks Brendan …yes I did consider that alright , but I just like having a few thousand in emergency funds just incase I have an unexpected expense etc.
 
Justaverage said:
I just like having a few thousand in emergency funds just incase I have an unexpected expense etc.
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Yes, but you have two jobs. Good incomes. Good savings.
You can probably buy stuff with your credit cards if there is an emergency and then clear it fairly quickly.
I am sure your bank would give you an overdraft.

I just hate seeing people paying such a high price to have cash available.

Brendan
 
7k a month (84k a year) take home pay on joint salaries of 225000 pa. without doing any maths, that just surprised me. Based on nothing, I expected it to be more...
 
phoenix53 said:
7k a month (84k a year) take home pay on joint salaries of 225000 pa. without doing any maths, that just surprised me. Based on nothing, I expected it to be more...
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€140k + €85k married couple would be should be about €11.5k net p.m. but maybe they're making (maximum?) pension contributions which could bring this down to around €7k.
 
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Surly getting 40% tax relief is better than insuring interest charges of 4.83% ?
I can’t see the case for reducing pension contributions in order to pay down the mortgage.
 
Justaverage said:
Surly getting 40% tax relief is better than insuring interest charges of 4.83% ?
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You are making a false comparison.

You get 40% tax relief on the way in but you will pay tax when you draw down from your pension. (The effective rate will depend on the amount in your pension fund and your total income.)

I am not arguing against pensions at all, I am a big fan.

But it's a question of timing. If you clear your mortgage early, you can then make up the "lost" pension contributions because you will no longer have mortgage payments to make.

Brendan
 
Is it not normally the case that one would draw down pension at or below the 20% tax band thus making a net saving of (40%-20%) 20% which still compares favourable with mortgage rate of 4.83% not to mention the years of tax free growth in the pension. I am more likely to build up savings and every now and then review it and say I down need that much whatever the emergency and then decide to pay a lump sum off the mortgage … that is what I’ve done to date. I borrowed 460k 15 years ago and now it’s down to 42k with 15 years left on the term … in all likelihood I will pay it off sometime between now and 5 years time. Personally I think the pension rules are very likely to change over the next decade … with auto enrolment will eventually come a levelling up of the % relief allowed , perhaps 25% and the end of the currently very encouraging 40% for those of us on higher incomes. So I’m personally inclined to load in now while I can. But thanks for your views Brendan , food for though.
 
Justaverage said:
a net saving of (40%-20%) 20% which still compares favourable with mortgage rate of 4.83%
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You seem to be comparing 20% with 4.83% which makes no sense. What if the tax saving was 40% and the mortgage rate 1%? You can see that they are not directly comparable.

If the interest rate is very low, maxing pension contributions now is usually the right strategy. With high rates, I think that paying off the mortgage is better.

You might be on a 20% tax band when you retire, but I imagine that with a large pension fund and state pensions, it's unlikely.

Justaverage said:
I think the pension rules are very likely to change over the next decade … with auto enrolment will eventually come a levelling up of the % relief allowed , perhaps 25% and the end of the currently very encouraging 40% for those of us on higher incomes.
Click to expand...

That is certainly one of the arguments in favour of maxing pension contributions now.
 
Justaverage said:
Is it not normally the case that one would draw down pension at or below the 20% tax band thus making a net saving of (40%-20%) 20% which still compares favourable with mortgage rate of 4.83% not to mention the years of tax free growth in the pension. I am more likely to build up savings and every now and then review it and say I down need that much whatever the emergency and then decide to pay a lump sum off the mortgage … that is what I’ve done to date. I borrowed 460k 15 years ago and now it’s down to 42k with 15 years left on the term … in all likelihood I will pay it off sometime between now and 5 years time. Personally I think the pension rules are very likely to change over the next decade … with auto enrolment will eventually come a levelling up of the % relief allowed , perhaps 25% and the end of the currently very encouraging 40% for those of us on higher incomes. So I’m personally inclined to load in now while I can. But thanks for your views Brendan , food for though.
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I guess its a very case by case example, a big part of the mortgage early repayment angle is to cover the worst case scenario of health deterioration etc sudden less of income etc.

But given you have only 5 years to go, its perhaps less risky. There is obviously valid points for both arguments.
 
Something funny about your numbers, your monthly salary is 18.75k a month between you yet you are only taking home 7k a month. Is there a typo in the original post somewhere?

regardless, usual rules apply around doing a full end to end tax review to see that you are maximising allowances and claiming everything you can on health and anything else you can claim for and to see what you can back claim for.

Your emergency fund is small, especially given the way prices have gone up. Do you have any major once off expenditures coming up, car change, work on the house etc.

Rather then simply blindly adding to your pension, you should be looking to see what potential major expenditures you will have in the next 10 years and also what do you need to live on comfortably when you retire and, including the state pension, how far on are you to meeting those goals.
 
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