What to do with additional 150k p.a.?

Alkers86

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217
Re: Children living away from home, rather than at home while going to college in same city



Thanks. This is not something we considered. And the additional rental+living costs would put me off. We will consider it.

If, we decide go down the route of kid(s) doing college away from home, I think we would try to buy something suitable for rental. Will discuss this more with my spouse. At the moment, my frugal side could only get on board with this, if we could make the thing pay for itself, or come to close to that. Potentially this could be part of some form of inheritanc planning too.
This isn't solely a financial decision, you need to also consider your children's appreciation and understanding of money and how getting them their own place to attend college might impact on that. You say in your opening post how you've been saving your entire life, not having come from a wealthy family and this trait has served you well. You don't want this important skill / value to be lost on your children. It's one thing to fund or part fund a house share for them in another part of the country as many other students will be doing but getting them their own place if they could easily attend from the family home may not have the intended consequences for them either. Just something to consider.
 

Blackrock1

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729
Have you exhausted all options with your employer for additional ER contributions. Is there an option to have your bonus/performance paid as ER pension contributions? Care would have to be taken that it is not deemed a salary sacrifice and taxed as a BIK. My understanding is that it has to be at the employers discretion to choose the type of payment, i.e. you cannot request it to be paid as a pension contribution or it would be deemed a salary sacrifice. Some contractual renegotiation would be required
If you have reached the threshold you have reached the threshold, employer contributions are already included.
 

MugsGame

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Employer contributions to occupational schemes don't come out of the annual tax free limit of €115k of earnings.

Of course there's still the overall ~€2m fund limit to be mindful of.
 

Blackrock1

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729
ah i always read this as er contributions came out of the limit, but i see now that it relates to PRSAs....

PRSAs​

Employer PRSA contributions are:

  • deemed for tax relief purposes to be made by the employee
  • added to the employee's actual contributions to determine if the above limits are reached
  • treated as a taxable employer benefit received by the employee.
 

AGoodLife

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38
I am also always curious to hear about the role or employers providing such excellent packages. Well done anyway.
Someone guessed you are in tech, an industry where some are suggesting a share price bubble, but whichever, any share and any industry can run into a crisis, so the risk needs to be diversified via some form of portfolio as an alternate.
Yes, Let's say a Tier-1 tech company. And shares have done very well over past years. I deliberately didn't sell for a few years, to ride the risk,and I mostly have managed to sell out at annual highs, in order to help fund house purchase and pay down mortgage. After renovation, and with current level of mortgage, I will not have something that 'forces' me to sell more of the shares, but I accept it is very risky to let the value build too high. Albeit, I have been paid hansomely for this risk by holding on to the shares in the past, and not selling as soon as they vest.

You mention being financially independent is the goal. I think Brendan nails this in his response, you are essentially there or on the home straight, so this is about protecting wealth.

You could approach this my doing an exercise to establish your cost of living, post mortgage repayments, required to maintain the standard of living you want, or in other words your desired retirement income. I think you have done this loosely, but put some actual numbers on it yourself. In an ideal world that number equals the your passive income, plus annual growth of pension and equity portfolio, with no need to sell anything ever. That may well be achievable for you given your income and youth.
Ye are right, I would be there in two years. Assuming I pay down mortgages with new savings (and don't invest them) and the 400k renovation is completed, then in two years, my costs are about 40k p.a. Rental is about 18k income. Pension growth would be about 22k (550*4%). And I would have no cash/stock in hand.

I think I can only access the pension from 50, and I think I would be more comfortable having a bit more room to maneover.

A second rental income cashflow. With a secod property of about 300k, would take 2 more years (so four years now), and then I could have the two rentals covering my base costs, and not need to sell equities to live, so would be well setup to weather stockmarket collapse.

Although Brendan is suggesting to buy a direct equity profile, before a second rental property.

It seems you enjoy your house but other than that your family are not driven by materialism, multiple posh cars and posh holidays. Even if you decide to start taking an extra holiday, it won’t be a major cost in the scheme of things, unless you go totally mad.
Thanks, yes I tend to agree, it would be very difficult for us to mad on spending

My instinct would be pay off the non trackers, max pensions, and get a diversified equity portfolio. decide or clarify if the “financial independence” is also about a very serious objective to retire early, or just a position in life so you always feel you have the comfort and choice. If retirement as early as possible is the goal then there are probably some threads on here too; you don’t need to live frugal but would want to watch your monthly costs don’t go creeping way up just because your earnings do, or things like your renovation are well managed and enjoyed but don’t become a total money pit.
Pensions are maxed. Mortgage will be paid down, although not yet clear if that is the next step, or after further investment first. Renovation is a risk, we don't have a good handle on the price for that yet.
I would also add given the sums involved that it’s worth taking proper advice about retirement planning and risk management.
Maybe I'm overly hubristic, but I am not convinced that I would get value from it? And did I mention I love doing things myself, rather than outsourcing them (possibly to a fault)
 
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AGoodLife

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38
If you're considering the risk that the insurance doesn't pay out, isn't there also a risk that your employment is terminated (on grounds of ill health), and that therefore your RSUs won't continue to vest?
I think it is a risk, but I don't think they would. Generally I have found them to be very reasonable.

I think the outgoings of 40k+25k mortgage, and gross income of spouse 50k+18k , would mean we would probably come out ok, till we could access pension. If it happens after two years, then I think we will be 100% fine, as the additional savings culd pay down the mortgage.
 

AGoodLife

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38
My advice is to vote or campaign for a left wing party, maybe Sinn Fein. A more equitable taxation system would mean more equitable distribution of wealth and alleviate some of your problem.
Can you send me your bank account details, you can be the middler person, and solve my problems!
Just one thing, I will need you to send me 1k first, just to make sure I have the right account.

If someone's " problem" is " I really haven't got a clue what to do with 150k ", every year, then they have to expect a bit of a ribbing.
All in good fun. Fully realise this is a 'ridiculous' problem to have. Although, I do have several ideas/clues about what to do with it!
 
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AGoodLife

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38
Agree with spending to create memories. You can't take the money with you.

I think you're underspending is fine. I was like that too. I had to learn to spend and I quite like it actually. My family used to give out to me about how tight I was.
Thanks, that helps. Good to hear from others who were in similar place. I will work harder on spending.

The only reason I said not to renovate was because of the stress. But now you've said you'll rent, plus you're both happy where you are than absoluely stay put.
Thanks for cofirming.

And please don't buy a Tesla. But I'm sure you could spend 20K on a car. My own tin can, that I love, is 16 years old and is my pride and joy. And is the despair of the entire household as I don't even have a radio in it. But I can find my way around without a GPS !! One thing I do konw, and NRC said it, you never know what ill health can do to you. Or how life can throw a curve ball at you.
hehe, I can relate. Although, 20k for a car is probably more than I could spend! Unless it was going to make money for me.
 

AGoodLife

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38
I am still a good bit behind in replying to all the posts, but I will get there eventually. Please keep the feedback and ideas coming.

First off well done, you are in a great financial position.
Thanks! And thanks for sharing your view and life experience.

Few things come to mind, one thing the lockdown as brought home to me is that your home important, if you can improve it or get a better one do that.
I agree, we spend most of our time in our homes (even without covid), and making them comfortable, with invigourating and relaxing places makes a lot of sense to me.

If you are planning a major renovation itll be more like 400k than 200k.
Your are probably right. We are thinking at maximum along the the lines of 150m2 renovation+100m2 extension. Looking a bit further, I think rough prices are 150*1per m2+100*2 per m2 = 350k. But we will want it to be relatively high spec / over supplied on things like storage, plumbing, natural light, bringing the outside in, low future running costs, and would try to favour environmentally favourable materials. So probably 400 will even be a challenge?

Secondly, and you have alluded to this yourself, make sure you are enjoying yourself, holidays, gadgets, a car, stuff for the house, whatever it is that floats your boat, because you cant take it with you.
Agreed, we need to do spoil ourselves some more.


Thirdly, does your wife want to work, or is she just doing it because she can earn a reasonable income working part time? we had a similar decision to make (albeit my wife was still working full time) and we decided to forego the 80-100k she earns a year so that one of us can be with the kids full time, now my earnings had increased over the previous 2-3 years to effectively take up the slack once we took the childcare costs out but it meant i was earning a lot more for us to stay still effectively, but we still think its a good use of our resources! My kids are younger so it may not be as important in your case.

And lastly, again depends on your outlook, but personally i enjoy working, once i get my mortgage squared away itll take the pressure off a little and im not beholden to anyone as such, but do you want to be financially independent to meet a goal you set for yourself or do you really want to leave what you are doing in the longer term?
Thanks for these points. I want to dedicate a full reply to each of these two important points, as I think they are very significant for our life.
 

AGoodLife

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38
I don't think I really addressed this point in my early reply.
Would you ever consider "downsizing" to a less financially rewarding but potentially less demanding job?

handy link to my earlier reply where I address the rest of MugsGame question on work/life balance

I think the money and work/life balance is too good where I am right now. I do place stress upon myself. But I have found I will do that in any job. So I don't think downsizing my job is interesting on my path to financial independence, or would improve my overall quality of life.

I have read that from a philosphical / 'good life' / 'happy life' point of view, I should be happier if I my work has a very strong sense of purpose, and bringing value to a wider group, so potentially when financial goals are achieved, I should consider it from that a hapiness/satisfaction point of view.

That said, presently, (but less so in the past) I do find a larger sense of purpose & creating value for others in my current work and projects.
 

NoRegretsCoyote

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A second rental income cashflow. With a secod property of about 300k, would take 2 more years (so four years now), and then I could have the two rentals covering my base costs, and not need to sell equities to live, so would be well setup to weather stockmarket collapse.

I wouldn't be a fan of this idea.

Two rental properties is incredibly concentrated by asset class. It is also very high risk. One dud tenant and you lose 50% of your rental income.

I think being a private landlord can make sense. But the yield has be enough to compensate for the risk and you'd need a diversity of income streams.
 

Bronte

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14,165
I wouldn't be a fan of this idea.

Two rental properties is incredibly concentrated by asset class. It is also very high risk. One dud tenant and you lose 50% of your rental income.

I think being a private landlord can make sense. But the yield has be enough to compensate for the risk and you'd need a diversity of income streams.
There is an amazing amount of emphasis on dud tenant's on AAM. As a long time landlord with other family members in this business for decades it is not our experiences. And sure yes we have had a bad experience here and there.
 

NoRegretsCoyote

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3,175
As a long time landlord with other family members in this business for decades it is not our experiences.
I just looked at the RTB website. There were 923 adjudication orders in 2019 alone with the tag "overholding".

There are I think 300k private tenancies in Ireland. Assume a quarter (75k) end every year.

So there is over 1% of tenancies that end in a legal dispute over tenant overholding. There are more that never go to the RTB, or are settled before adjudication. So let's say 2%, or one in fifty tenancies ending with a dispute.

So as a landlord if you hold 2 properties for 25 years statistically you can expect at least one dispute with a tenant for overholding.

I think this is a very material risk.
 

Bronte

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14,165
And that's a material risk how?

How would you compare it to the risk of holding shares for 25 years if they turned out to be AIB or BofI shares in circa 2006?
 

Steven Barrett

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4,068
Have you exhausted all options with your employer for additional ER contributions. Is there an option to have your bonus/performance paid as ER pension contributions? Care would have to be taken that it is not deemed a salary sacrifice and taxed as a BIK. My understanding is that it has to be at the employers discretion to choose the type of payment, i.e. you cannot request it to be paid as a pension contribution or it would be deemed a salary sacrifice. Some contractual renegotiation would be required

Still difficult to do as the basis of how the bonus is calculated is set down in the contract. By giving your employer discretion, you are in effect giving them permission to give you no bonus and you have waived your contractual right to receive a bonus if certain metrics are met. You'd be crazy to give up those rights.

Also, for larger organisations, there is no way HR are going to get into that as once one person does it, others will too and it just becomes messy. It is also more likely to attract the attention of the Revenue and they may ask to examine all these new contracts that the employees now have and roll them back.


Steven
www.bluewaterfp.ie
 

NoRegretsCoyote

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3,175
And that's a material risk how?
Because it's something that:
  1. you are statistically likely to encounter as a landlord over a career;
  2. will involve non-trivial financial loss and/or a lot of personal hassle.

How would you compare it to the risk of holding shares for 25 years if they turned out to be AIB or BofI shares in circa 2006?
That's a complete straw man.
 

Sarenco

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6,893
Your are probably right. We are thinking at maximum along the the lines of 150m2 renovation+100m2 extension. Looking a bit further, I think rough prices are 150*1per m2+100*2 per m2 = 350k. But we will want it to be relatively high spec / over supplied on things like storage, plumbing, natural light, bringing the outside in, low future running costs, and would try to favour environmentally favourable materials. So probably 400 will even be a challenge?
€400k for that level of work in Dublin looks like a pretty tight budget to me, particularly if you are going for a high spec.

2019 RIAI Consumer Cost Guidelines (ex vat): Extension - €1,900 to €2,300 per sqm / Renovation - €1,800 to €2,000 per sqm.

So, €460k to €530k (ex vat) for your project.
 

Steven Barrett

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4,068
€400k for that level of work in Dublin looks like a pretty tight budget to me, particularly if you are going for a high spec.

2019 RIAI Consumer Cost Guidelines (ex vat): Extension - €1,900 to €2,300 per sqm / Renovation - €1,800 to €2,000 per sqm.

So, €460k to €530k (ex vat) for your project.
Prices are going through the roof at the moment and only going higher. Builders can't get tradesmen, who's prices are only going higher. supply of materials going up. I was told as a rule of thumb €1,500 per square meter if single story extension, €2,000 if going for 2 storey. If you want it high spec or there's anything complicated, it's going to be more.

Get a QS to do the cost before you put it out to tender.
 

AGoodLife

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38
I wouldn't be a fan of this idea.

Two rental properties is incredibly concentrated by asset class. It is also very high risk. One dud tenant and you lose 50% of your rental income.

I think being a private landlord can make sense. But the yield has be enough to compensate for the risk and you'd need a diversity of income streams.

I was planning a long term lease to the state, although the state could renege...


@NoRegretsCoyote Are your ordered preferences, 1. putting extra money into pension (unlikley to get tax relief on it), 2. pay down mortgage, 3. buy shares, 4. buy another rental.

At what size portfolio do you think a second rental makes sense?
 
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