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

AGoodLife

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€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.
<gulp>

Thanks, I think I saw numbers I used based on some other folks experiences, but RIAI sounds more reliable. Might be better off just knocking it all and starting again.

Big picture, I guess we can afford it, or we can shrink the project.
 

AGoodLife

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38
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.
Thanks Steven. Yes, will do.
 

AGoodLife

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38
Great, we've solved the OP's problem :)

Well not really, only deferred it for a year, there is still the 'problem' of after the renovation spend, where to put the 150k p.a.

My options are still:

-pay off the mortgage, to do that over the next two years feels too safe, I would prefer to have the money work harder for me, I understand that is riskier, but I also have a 20-60 year timframe.
-contribute beyond tax relieft to pension (If I retire early, I understand that I might never be able to use the carried forward tax relief, but at least tax free growth)
-invest outside a pension (not very tax efficient...maybe a large basket of shares directly)
-buy a second rental property? and then a third?
-set up trusts or pensions for the kids (saw some threads here on that recently), and start using the 3k exemption per year? (we never had access to something like that growing up, and I think we benefitted from having to do it ourselves, and I fear they might just blow it, but houses are not cheap these days).

Brendan says pay off mortgages and then buy shares.
Bronte says buy rentals
NRC says fill the pension boots
 

AGoodLife

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38
Hi AGoodLife,

As a slight aside, I do not have private health insurance preferring to have created my own fund by saving the would-be premiums in a dedicated account to be drawn upon when necessary.

This has worked effectively for over 25 years, with a tiny fraction spent on private healthcare compared to the premiums saved.

You're in a strong financial position so I would consider this if you haven't already done so.

Interesting point. I think I saw Brendan suggesting this decades ago, on here, but to start the fund when you are young. As we age it is more likley that we need medical assistance.

Work pays for a decent policy at the moment, so my cost if the BIK, which is about half the cost of the policy.

Do you plan to purchase a policy as you/your family age, to hedge against increased risk? (and bank your profits?)
 

AGoodLife

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38
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.

It's an occupational type pension, I max out my age based tax relieved percentage of 115k, and my employer puts in an additoinal percentage of my salary.

I have considered trying to approach HR about improving pension funding options in general, I would be delighted if they put vast majority of my income straight into pension for a few years. Given tax regime in Ireland, this would be my dream. But unfortunately based on reading the occasional threads on here about it, it seems unlikley to be easy or possible to arrange, with companies with dedicated legal & hr departments.
 

MugsGame

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2,687
-contribute beyond tax relieft to pension (If I retire early, I understand that I might never be able to use the carried forward tax relief, but at least tax free growth)

Brendan cautioned against me doing this as the tax relief regime might change.

I've prepaid small AVC amounts (and gotten the AVCs reflected on my tax free allowance certificate for 2021 to get immediate relief through payroll) but haven't gone ahead with a multi-year contribution in part because of this line from Revenue
this relief is only from the source of income in respect of which the contributions are made.

One interpretation is that if you prepay your AVCs above the annual limit, you can only use that for future relief if you stay in the same employment.
 

Dublinbay12

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540
Well done Op on being in such a great position! I also like the spouse earning 50k whilst working part time! I hope to be in your position in my 40s.

The only observation I can add is after watching years of home renovation programmes the majority go overbudget.
 

NoRegretsCoyote

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3,175
@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.

For you I would:
  1. Pay down mortgage
  2. Put extra into pension
  3. Buy a rental
  4. Buy an ETF

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

Your income is big enough to weather a dud tenant easily.

To me a rental portfolio makes sense in some or all of the following circumstances:
  • You have the benefit of a tracker and/or sheltering a CGT loss
  • You have time and resources to do maintenance and even renovations yourself
  • You or a spouse has no other earned income and can accumulate pension entitlement with Class S PRSI from rental income
  • You are in a high-yield area (as in 10% or higher), usually apartments
  • You can acquire more than one property in same development
 

ATC110

Registered User
Messages
358
Do you plan to purchase a policy as you/your family age, to hedge against increased risk? (and bank your profits?)
I'm over the community rating threshold so it would be too expensive to enter the health insurance market.
I'll continue to act as my own insurer aka take my chances!
I have no dependents so cannot foresee how it would ever be worthwhile.
 

Steven Barrett

Registered User
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4,068
Well not really, only deferred it for a year, there is still the 'problem' of after the renovation spend, where to put the 150k p.a.

Get your renovations done first and wait and see how much cash you have after that.

Max out your pension each year.
Build up a cash reserve that you are comfortable with.
Pay down your mortgage asap
Build up an investment portfolio with the rest.
Don't be in a hurry to buy a property. Those high prices that first time buyers are complaining about apply to investors too. There is plenty of time to buy a property and if you wait, you can buy it in cash.

Working for a tech firm, you won't get a gold watch for 40 years service, so make hay while the sun shines. Put a plan in place to automate savings each month and watch your wealth grow.

Remember, there is a difference between having a large income and being wealthy. There are lots of people with incomes similar to yours who are not wealthy as they have spent it on expensive houses and lifestyle. Build wealth and you will have lots of options.


Steven
www.bluewaterfp.ie
 

Blackrock1

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Messages
729
Remember, there is a difference between having a large income and being wealthy. There are lots of people with incomes similar to yours who are not wealthy as they have spent it on expensive houses and lifestyle. Build wealth and you will have lots of options.


Steven
www.bluewaterfp.ie

thats an interesting point Steven, the other side is whats the point in earning lots of money if you dont get the enjoyment / benefit from it, because wealth generally gets passed on !

i am all for some fiscal prudence, but the recent past has also reminded me that tomorrow is promised to no one!
 

Steven Barrett

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4,068
thats an interesting point Steven, the other side is whats the point in earning lots of money if you dont get the enjoyment / benefit from it, because wealth generally gets passed on !

i am all for some fiscal prudence, but the recent past has also reminded me that tomorrow is promised to no one!
You are misunderstanding me. You accumulate now to spend later. In the industry, we use the term "financial independence" but what we really mean is being rich. If you accumulate wealth, you have choices. You can retire earlier, you can change to a less demanding role, help out the kids, go on more holidays.

Spending now means your lifestyle costs are higher. You will want to maintain that lifestyle in retirement but because you have been spending more, you are saving less. But you need a bigger pot of money to be able to maintain your lifestyle. So what is the solution? You work for longer than you want (I know people working just as hard in their 70's because they never saved) or you have a big drop in lifestyle when you stop working.

I am not a FIRE advocated and I do not tell people not to enjoy life. Automate you savings, so it comes out of your account automatically, just like a bill. then feel free to spend what is left over on whatever you want.


Steven
www.bluewaterfp.ie
 

AGoodLife

Registered User
Messages
38
Thanks @MugsGame

It is fairly certain I will not recoup most of the relief in the future, so I don't think that element of regulation change affects me much.

I would be overpaying the pension, just to get the tax free growth. A contribution today, might grow tax free for 50 years if I have a good run. and would be expected to grow tax free for 30 years.
 
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AGoodLife

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Messages
38
Well done Op on being in such a great position! I also like the spouse earning 50k whilst working part time! I hope to be in your position in my 40s.

The only observation I can add is after watching years of home renovation programmes the majority go overbudget.
Thanks DublinBay

That is certainly a possibility from what I have seen. But I guess once we get it completed, while I still have the high earnings that could be ok.
 

AGoodLife

Registered User
Messages
38
For you I would:
  1. Pay down mortgage
  2. Put extra into pension
  3. Buy a rental
  4. Buy an ETF
Thanks NRC!

To maximise time in the market, I am really considering pushing out fully paying down of the mortgage, or doing it over the next few years, while doing some other investment.

Your income is big enough to weather a dud tenant easily.

To me a rental portfolio makes sense in some or all of the following circumstances:
  • You have the benefit of a tracker and/or sheltering a CGT loss
  • You have time and resources to do maintenance and even renovations yourself
  • You or a spouse has no other earned income and can accumulate pension entitlement with Class S PRSI from rental income
  • You are in a high-yield area (as in 10% or higher), usually apartments
  • You can acquire more than one property in same development
I understand the rationale behind most of these, but not the last point, is that just for convience? Same development seems to concentrate your risk?
 

AGoodLife

Registered User
Messages
38
Thanks Steven!

Get your renovations done first and wait and see how much cash you have after that.
I think that is very pragmatic advice. We have about 400k with cash+stocks today, but even the rough estimates here, imply we might need 600k. (Writing down 600k for a renovation just sounds so ridiculous, I have trouble believeing it). But that means I likley need to accumulate another 150k over the next 12 months, i.e. I dont need to make a decision on where to put my money today, I just need to keep saving it.

Arguably I should sell all my stocks today (and as they arrive for the next year), as if the stock price fell, I might be forced to wait longer before we could do the big renovation, or sacrifice some of the renovation.


Max out your pension each year.
Build up a cash reserve that you are comfortable with.
Pay down your mortgage asap
Build up an investment portfolio with the rest.
Pension is Maxed, cash reserves in place, and this should hold through our renovation.

The future question becomes about timing on paying down mortgage vs investing more. I think I am leaning towards doing both at the same time with future money, paying down mortgage a bit, and investing a bit, with a view to maximising time in market, rather than paying down mortgage first, and then investing further.

For your last step, How do you suggest to hold the portfolio? Direct shares like Brendan? What do you think of overpaying it into pension? I am strongly considering putting it into pension.

Don't be in a hurry to buy a property. Those high prices that first time buyers are complaining about apply to investors too. There is plenty of time to buy a property and if you wait, you can buy it in cash.
I take your point that I don't need to rush. But, don't the current yields imply the prices are not crazy? And don't I get a better return on cash if I take mortgage with it. There is also the point, that I could potentially buy a house as PPR, lock in PPR rate, live there during renovation, and then rent it out afterwards. This set's it up with a nicer mortgage rate for the future, and also allows us to avoid paying rent for an unknown period during renovation.

Working for a tech firm, you won't get a gold watch for 40 years service, so make hay while the sun shines. Put a plan in place to automate savings each month and watch your wealth grow.
I think that's true for most jobs these days! And yes, I strongly agree, I have automatically saved and invested all my life. And my mortgage max contributions will continued. Recently the priority was paying down the Mortgage, but now that is reasonable, next it will be renovation, and then within the next year, I need to have a good automatic plan for where and how to save the additional 12k per month.

Remember, there is a difference between having a large income and being wealthy. There are lots of people with incomes similar to yours who are not wealthy as they have spent it on expensive houses and lifestyle. Build wealth and you will have lots of options.


Strongly agree, we live well below, and arguably too far below our means, Our outgoing are something like 25% of our after tax income, that includes mortgage payments, but not pension payments. That is partially just our habit and values, but it also with an eye on reaching Financial Indepennce, and having options for the future.

The PPR+renovation is the main splurge, with a median house and no big renovation project, we would already be Finacially independent.
 

AGoodLife

Registered User
Messages
38
i am all for some fiscal prudence, but the recent past has also reminded me that tomorrow is promised to no one!

You accumulate now to spend later.....

I am not a FIRE advocated and I do not tell people not to enjoy life. Automate you savings, so it comes out of your account automatically, just like a bill. then feel free to spend what is left over on whatever you want.
I think the issue is figuring out what current (and by defintion, future) spending level is reasonable. We can all agree on the tenet to live below your means. But by how much, and for how long.

As you say, increased spending now, means it takes longer before hitting financial independence or other savings goals, but assuming the spending is not wasteful, it can also bring more life now when you are perhaps better able to handle more life!
 

AGoodLife

Registered User
Messages
38
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.

which brings me back to my point, unless your spouse really wants to work would everyones life not be better if they didnt?

Unfortunately (from my point of view!) my spouse does want to work. They value having their own independence and career highly. I think this is mostly about, the what ifs, and in particular, if we seperated, they still have their own career and income. Relationship longevity statistics are not awe inspiring.

They also enjoy the intellectual and social side of working outside the home, but they also tend to overwork,and their employer is not as considerate as mine, so their work life balance is worse.

They would also be very interested in getting invlved in some charity/not-for-profit stuff, but don't have the time today.

Overall, I think our qualiy of life would be much much higher if we only had one breadwinner, and with the rental, and tax bands, and childcare, I don't think we would even be that much worse off.

It takes time and energy to organise outings, activities, social events, weekends away, holidays, Having someone with more time to focus on that would be really great for the family.

Any strategies to convince my spouse to take the plunge?
 

Gordon Gekko

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So you’ve about €450k in cash/shares, the renovation might cost €600k, your mortgage is €275k, and you’re generating a surplus of €150k a year.

You’re already maxing out your pensions, so my analysis would be quite simple:

- Use your €450k and one year’s surplus income to fund the €600k renovation
- Don’t switch to Avant’s 1.95% rate as you won’t be able to pay down your mortgage aggressively
- Then over two years clear your mortgage and make sure you’ve around €50k in cash for emergencies
- Then invest €150k a year in a diversified share portfolio and don’t look back
 
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