Hey Guys, just looking for a bit of advice in terms of investment strategy and whether I should increase my pension contributions further. current situation is as follows;
I'm 37 and Earning c€100k p.a, wife works part time but we dont count on this income.
Currently have c€40k cash in current account as emergency fund (prob too high)
Have two kids and save the €280 per month childrens allowance in a separate savings account and once it hits €10k I buy State savings bonds with it as a way of saving for college etc. Currently have c€13k set aside here.
I have been overpaying my mortgage since the start and am in the process of moving my mortgage to Avant. I will be keeping my mortgage payment the same at €1300 so this will allow me to reduce my term to 13 years (20 years currently) so I will be mortgage free when im 50.
I have a defined benefit pension from an old job of €6.5k (inflation linked) p.a.
My current employer contributes 12% towards my defined contribution pension and I recently increased my contribution from 4% to 10%. Therefore currently, the equivalent of 22% of my salary is being paid into my pension.
I have also recently started investing €800 per month through Degiro in a Vanguard Lifestrategy 80/20 fund. Although TER is slightly higher than other ETFs, this one does the rebalancing for me so avoid having to rebalance myself and incurring potential taxes each time (im aware of deemed disposal after 8 years).
My main query is if I should increase my pension contribution further, and if so by how much rather than continuing to invest through Degiro given the unfavourable tax treatment of ETFs. My thinking is I should have at least some money invested outside my pension in case I am able to retire early etc. Any advice welcome
@marissa23 Ha thanks, ive always been cautious enough with my money, folks didn't have alot of money when I was growing up so worked from very early age and learned the value of it. So for me its always been about saving and de-risking the mortgage, only recently began to open up to the need to invest and take on some risk to create real wealth so the investing side is still all very new to me
@noose You seem like a smart dude. I’d spend a bit of time doing some deep research into the stock market itself. Then maybe invest small amounts and follow them. Best way to learn is to be involved and follow the market for it. But when I say small I’m talking less than 1k, you’ll learn a lot along the journey.
@marissa23 From what I’ve learnt so far is to follow the Bogglehead approach to investing, simple enough portfolio of 2-3 ETFs. In the end I went with the Vanguard Lifestrategy fund due to the tax implications of rebalancing the portfolio in Ireland.
@noose Personally I max pension contributions before investing with after tax money. I plan to do this until my pension is on track to cover from retirement(the age I can access the funds) onwards, then switch to after tax investments to bring forward my retirement age.
How far away is college for the kids? Id be tempted to invest that money in a broad index ETF too if the time horizon is long enough. Maybe open a separate brokerage account if you really want to ring fence the money for college.
@digital_joseph In terms of pension coverage. Once mortgage is gone my monthly expenses will be €2k let’s even say €2.5k which is €30k annually. With state pension for myself and wife of c€24k and my defined benefit pension of €6k this is almost covered already
@noose Depending on rules of your DC pension scheme you could draw it down from age 50-60, which could be up to 16 years before state pension kicks in. If you have that factored in already, then maybe after tax investing is the way to go.
@digital_joseph No haven’t factored that in as yet. I haven’t given much thought at all to retiring early. At present I enjoy my job. So plan is to get to 50, be mortgage free and hopefully have a decent portfolio of investments ( whether in or out of the pension) and see what my options are at that stage.
@noose Fair enough, it sounds like you'll have plenty of options by 50 anyway.
One downside of maximising pension contributions that might not affect many but might affect you with your high income and employer contribution is the standard fund threshold. Anything in a pension fund above the SFT of €2 million would be taxed at 40% at retirement.
@digital_joseph Yea I’m aware of that but haven’t given it much thought. To be honest that level of money is beyond anything I could have ever contemplated. If I was to get there and had to pay tax on it I would still fell like I’m in a very lucky position
@noose You've a good setup but in terms of next steps i'd max your AVCs in your pension to 20% as you said employer contributions don't count to the limit as you get the tax discount, and your capital gains and compounding interest are tax free inside the pension wrapper. After that I think the DeGiro ETFs are good long year investment for reitrement: 25Y+
@hansbiblebeliever Yes I think that is what I will do. Increase the pension contributions up to 20% and then any spare cash I have left over along with the €280 children’s allowance into the Vanguard ETF
