What to do with an upcoming lump sum?

G

Gthyre

Registered User
Messages
15
Personal details
Age: 40
Spouse’s age: 37

Number and age of children:
Two, ages 2, 3 months

Income and expenditure
Annual gross income: €52000
Annual gross income of spouse: currently on maternity leave.

Monthly take-home pay: €2700 (less pension contributions)

Type of employment: PAYE

In general are you:
(a) spending more than you earn,
(b) saving

Summary of Assets and Liabilities
Family home worth €450k, mortgage paid off.
Cash of €40k
State saving investment due January 2023 worth €140k
Other bits and pieces worth approx €15k
Defined Contribution pension fund: €75k

Other borrowings: n/a

Do you have a pension scheme? Yes, I have a defined contribution pension in which I put in 25% of my income (including AVC contributions) and my employer adds 8%.
My wife has just started one in the last year and is also putting in the max amount of AVCs to avail of tax relief.

Do you own any investment or other property? No

Other information which might be relevant:
My wife is currently on maternity leave and will go back to work part-time in 2023. I would expect her to have a gross income of €30000

We are putting €500 a month into a Zurich fund as a form of regular saver.

We are also putting another €500 per month into a 3rd level fund for our two children.

Life insurance: I have life assurance and illness cover provided my employer.

What specific question do you have or what issues are of concern to you?
By early 2023 we will have a lump sum of approx €150k to invest with.

I guess we are looking for something medium to long term that will beat inflation at the very least... Any suggestions or recommendations for us?
 
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I think you are in a very good place financially, with good savings and no mortgage to pay. I think you should get independent financial advice on what to do with your lump sum, because it depends on your life goals and your risk appetite.

Maximise your wife’s pension when she returns to work.
 
How did you get to your current financial position at very young age? Was it all your own doing or did you get some financial help? You are not big earners but you have no debt and have accumulated a lot of cash.
 
Yes we have received inheritance on both sides which we used to help pay off the mortgage.

Prior to going on maternity leave, my wife was on a good salary (contracting) and we like to think we are both good savers.

We have prioritised paying off the mortgage over investing in our pensions, and it shows in the little value we have in them currently.

We are also mindful of the good financial fortune we have had and are keen not too squander anything in the future.

Thanks all for your replies,
 
looks like you are in a nice position, im sure a financial advisor can suggest a fund to invest the 150k in, id give consideration to one of you taking more time out of work to spend with the kids while they are young, up to 10/12 are the golden years and you dont need the extra income, trying to juggle two jobs (even if one is part time) and manage 2 kids and childcare is a big hassle, and not always worth it.
 
wheeler dealer said:
90% into state savings ,10% into a stockbroker a/c to gamble on shares
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State savings return rate is not keeping up with inflation at the moment however.

I'm not interested in gambling with shares but do accept that I need to accept some form of risk.
 
Gthyre said:
Yes, the 150k would include the matured state savings.
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You and wife should both maximise tax-relieved pension contributions and put it into all equities.

Gthyre said:
We are putting €500 a month into a Zurich fund as a form of regular saver.
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This is fine but you are exposed to tax in a way that you aren't if you put it in pensions. I would keep an all-cash emergency fund and prioritise pensions instead. Cash is good if you are saving to trade up or buy a car but otherwise spare wealth should be in a pension.

Gthyre said:
We are also putting another €500 per month into a 3rd level fund for our two children.
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Again am not sure what the objective is here. You will still have an income when your children are in third level. It makes more sense to prioritise pension now and then deprioritise it in 15-20 years time to fund your kids' third level if needed. The pension is tax free on the way in, tax free on capital gains, and (depending on the scheme) you may be able to withdraw 25% tax free as young as 50.
 
Thanks for your input NoRegretsCoyote,

In regard to our pensions, we are both already putting in as much as we can gain tax relief on. I don't see the point in putting anymore in on top of that if there are no tax savings on it.

Regarding the 500 euro p/m regular saver, we already have 40k in cash emergency savings and calculate that that would get us through 18 months of expenses as we are living right now. We could continue to build up that cash saving but think it's good to see if we can grow the regular saver pot through investment instead.

Regarding the college saver fund, seeing as we are maxing out our pension contributions we would also like to put money aside while we can to aid 3rd level costs. This money is going into a Zurich Child Savings plan which allows you to make a 3k contribution per child per annum tax free. The growth on this fund is not taxed (as I understand) and does not affect the inheritance threshold for our children either.

Thanks again for all replies, I greatly appreciate peoples thoughts on our situation.
 
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Just as an FYI, there’s a tax exception for supporting your kids through 3rd level if they are aged between 18 and 25 years of age and are in full time education. So when the time comes you may have the option to pay for their education and maintenance from other funds and then they could use the Zurich funds for something else, house deposit or car or whatever.

Exemption for support, maintenance and education payments

Income or gains that are exempt from CAT
www.revenue.ie

Edit: I’m not an expert but the growth will be taxed when you sell the fund right?
 
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The thing that jumps out to me is that you seem to be living very frugally. You're saving a €1,000 pm on take home pay of €2,700 pm so living on 1,700 for a family of 4. That's great if that's what you want but be sure that you're not making unnecessary sacrifices now.
 
Well to be precise, 500 for the monthly regular saver comes out of my take home pay while my wife is putting the other 500 into the 3rd level fund.

So we're not too bad . There's nothing we want for at present thankfully.

On the other hand, our kids are so young at the moment there's not actually that many places you can go with them, nor can we get out ourselves at night like we used to. It's not going to be forever either
 
That's an interesting point regarding the tax exception and something that I will look into more.

This 3rd level fund we are paying into is actually a trust in each of our children's names. So the value of it will go to them when they turn 18, and there is supposedly no tax due on any growth.
 
Also to note, our highest priority right now is to ensure we max out our pension contributions to avail of tax relief.

Following that, our next priority is to put 3k per child into the 3rd level fund per annum

And then the lowest priority is the regular saver, this can be paused or reduced down if we have an issue with cashflow in the future
 
kavvie said:
would zurich prisma 3 or 4 be a good low risk idea?
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I'm in Prisma 4 and 3 more sort of similar ones for the past 7 years, I'm down aprox 12.5% since the beginning of the year. However the fund is still in positive territory overall, but going down. I'd also lioke to know if I should stick in there or pull out. Thing is, it's expensive to buy in again and where else do you put money? In your case you'd be buying in at a lowish price.
 

My understanding is the fund will grow tax-free for the next years but when your children withdraw it they will pay tax on the gains
 
Adelie said:
My understanding is the fund will grow tax-free for the next years but when your children withdraw it they will pay tax on the gains
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I just checked back through the documentation again after reading your last post and it does appear to allow for tax free growth:

"By legally assigning a Child Savings Plan to your child, your contributions count
as gifts to that child. Provided you stay within the Small Gifts Exemption limit,
the child will not incur any Gift Tax or have their threshold reduced, either when
you make the contributions or when the plan is encashed."

Link:
 
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