Wondering how to plan for the next 5/10 years

Gthyre

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15
Age: 39
Spouse’s/Partner's age: 36

Annual gross income from employment or profession: 43000
Annual gross income of spouse: Currently unemployed on maternity leave.

Monthly take-home pay: 2500

Type of employment: e.g. Civil Servant, self-employed: PAYE in a multinational

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

Rough estimate of value of home: 400k
Amount outstanding on your mortgage: 33k
What interest rate are you paying? 3.05% variable

Other borrowings – car loans/personal loans etc: n/a

Do you pay off your full credit card balance each month? n/a

Savings and investments: Approx 40k accessible savings between us. 140k investment maturing in 2023

Do you have a pension scheme? Yes

Do you own any investment or other property? No

Ages of children: 1 (3 months old)

Life insurance: Some sort of a policy as part of our mortgage


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


At present, my goal is to pay down the remainder of the mortgage as soon as possible. I hope to do this by 2022/2023 when I'll have turned 40.

As we're quite good savers, I'd like to figure out our strategy after that.

I have a defined contribution pension through my work for the last 6 years. I put in 6% of my salary while my employer puts in 8%. My wife does not have a pension as her work so far has been of a temporary nature (but well paying).

I am thinking of focusing solely on my pension going forward (rather than my wife starting one), and using AVC payments to boost the value of it. I would look to start paying AVCs in when I turn 40 and/or the mortgage is paid off.

To add to this, I will have a maturing investment worth 140k in 2023 that I will need to do something with. Ideally I would like to invest it in something relatively low risk that could give me a return, or else look at purchasing a second property as a long-term investment.

I would appreciate people's thoughts on all of this and would gladly take on board your opinions for the future and what I could do to maximize our position.

Thanks
 
As you have 140k maturing in 2 years it absolutely makes sense for you and your wife to max out your pension contributions for 2020-2023. You can still make payments as part of 2020. The tax benefits on pension contributions are too good to pass up on when you have funds siting idol. You can then pay off the balance on the mortgage when the savings mature.
 
Let's look at last year - 2020 - first.

Did you pay tax at 40%? You should only contribute to the extent that you get 40% tax relief on it.

My wife does not have a pension as her work so far has been of a temporary nature (but well paying).

I don't fully get this. If she has income in any year in which she is paying the top rate of tax, she should contribute to a pension fund.

She is not obliged to pay €x per month. She can pay as she pleases and when it suits.

If she has such income for this year or last year, then she should contribute ahead of paying down the mortgage.


If you choose to make contributions even though you are getting only 20% tax relief...


You can put in 20% for last year
And 25% from this year, assuming you will be 40 this year.

You put in 6% automatically, so your scope for Additional contributions is
2020 : 14% of €43k = €6k
2021 :19% = €8k
Total: €14k

(In 2023, you can make the 2022 pension contribution after you cash your investment)

€40k Savings

So you can pay off your mortgage of €33k today.
You will have enough to make your €6k contribution for 2020.

Between your ordinary savings and your saved mortgage payments, you will be able to pay your 2021 pension contribution this year. If for some reason, you can't, then you can pay it from your 2022 income.

Brendan
 
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I'd fully agree with @David1234
Your mortgage is at the stage you could pay it off from savings if you wanted to. So don't worry too much about it.

Did your wife work last year? You say her job was well paying. It's not too late to start a pension for her, and make back dated contribution for last year.

I'm out the other side of what you're aiming for. I paid off mortgage in my 30's, but I regret not taking my foot off that a year or 2 earlier to focus on pension funding.
 
I am thinking of focusing solely on my pension going forward (rather than my wife starting one), and using AVC payments to boost the value of it. I would look to start paying AVCs in when I turn 40 and/or the mortgage is paid off.

I wouldn't wait. Over 25 years tax-relieved pension contributions will probably produce a better return than paying off a mortgage at 3% early.

You seem to have a personal goal of being mortgage free. This is nice psychologically but you should balance this against other objectives.

You seem like good savers but you'll presumably have childcare costs when your partner returns to work and and/or have another. Kids are not cheap and I guess you won't be able to sustain this kind of saving permanently.

I would like to invest it in something relatively low risk that could give me a return, or else look at purchasing a second property as a long-term investment.

You could probably buy a high-yielding €200k apartment with your €130k and a €70k BTL mortgage. There are a lot of threads on this on AAM. The consensus tends to be that it has a lot of risk for the return involved, particularly as you'll be paying tax at the top rate on all the rental profits.

My feeling is that you should boost your pension instead.
 
Do you need an Emergency Fund?

If you pay off your mortgage, you will have €7k cash in the bank. And you will be saving every month and you will have what would have been your mortgage payment.

With a new child, you might not be saving as much, so maybe hold onto a bit more. But not too much, assuming your job is safe or that if you are suddenly made redundant, you will get a generous redundancy payment.

Brendan
 
Thank you all for your replies.

I'm regards to my wife's situation, starting a pension and paying in contributions as she can sounds like a good idea.

In regards to paying in AVCs into my own pension for 2020, is there a time limit to doing this? Can I do it anytime within 2021?

Finally, in regard to the 140k investment maturing in 2023, aside from paying into my pension or mortgage, does anyone have any other suggestions on what to do with this?

Thanks again
 
Finally, in regard to the 140k investment maturing in 2023, aside from paying into my pension or mortgage, does anyone have any other suggestions on what to do with this?

Thanks again

First decide on what you want.

In 10, 20, 30 years time do you want to:

  1. have a large income in retirement
  2. pre-fund kids' education
  3. live in a bigger house

Without knowing what you want and when you want it there is no clear answer.
 
in regard to the 140k investment maturing in 2023, aside from paying into my pension or mortgage, does anyone have any other suggestions on what to do with this?

There is no point in trying to figure out now what you should do with money which won't be available to you for 2 1/2 years.

Your personal situation may have changed.
The investment landscape may have changed.
The tax system may have changed.

When the money matures, decide then, the best thing to do.

Brendan
 
Thank you both for your replies, you are right about 2023 being a while away yet. I will wait closer to the time before thinking on what to do.

One other question in relation to paying AVCs into my pension for 2020. When I look at my latest tax certificate from revenue, it details that I do not pay any tax at 40%. I believe this is due to my wife and I being jointly assessed and she is currently on maternity leave.

Would the fact that I don't pay any tax at 40% then mean it would affect my ability to pay AVCs to the max level of 20% of my salary? From reading responses above, it seems that it would be desirable to max my contributions only if I'm paying tax at 40%.

Thanks
 
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