My husband and I are in our mid to late forties and will have our mortgage paid off in the next three months. At that stage we will have an additional €2,500 per month disposable income. We are wondering how best to invest this to help us achieve early retirement. We have already maximised our company pension plan and additional voluntary contributions for our age bracket. We would like to retire in the next six years. We are looking for an investment we can continue to contribute to over that period, and then in year seven draw some additional income from that. The alternative is a buy-to-let property, but that brings responsibilities we would prefer not to engage in.
– Anon, Dublin
Mortgages in Ireland are cheaper than they’ve ever been – but you’ve still got to pay it off some time. For many people, becoming debt-free and owning your house outright is a major financial goal.
So if the end is in sight – firstly, well done, and now, what next?
Don’t give up that good habit
If you’ve paid off your mortgage early, it didn’t happen by accident. Instead, you almost certainly made a clear plan, committed to it, and stuck to it over time.
That’s a great financial habit – don’t stop now! You’ve seen the power of a working to a simple financial plan in a steady way over time.
Remind yourself why you did it – maybe to become more financially independent, reduce working hours, or remove the stress that debt can bring.
Your next goal
Consider setting a new financial goal. It might be to retire early, build a passive income, or change career to something you’ve always wanted to do.
And you don’t need to wait until your last mortgage payment to set that goal: once the end of mortgage debt is in sight, it’s time to look ahead.
Don’t forget the basics
To pay down your mortgage early, you likely made some sacrifices. You might have deferred some expenditure, postponed some treats, or even neglected some other financial goals like a pension, life insurance, an emergency fund, and your non-property wealth.
Now’s the time to look at whether you need to play catchup on those competing financial goals.
As you suggest, a buy-to-let property is not a cure-all. First, it’s getting harder because of the uncertain market, not to mention the burdens of tax, regulation and maintenance. Second, you already have exposure to Irish property: your own house. And third, buy-to-let lacks flexibility — for example to start immediately, build up regularly, and adjust as your requirements change.
Start a regular investment
If paying off your mortgage early shows you one thing, it’s the power of compound interest. By paying down your debt, you’ve saved having to pay a huge amount of additional interest. Now, the tables are turned.
When you’re saving money rather than borrowing it, compound interest works in your favour.
Many people who have focused hard on paying down their mortgage quickly are investing for the first time.
A regular monthly drip-feed, into professionally managed funds designed for growth over the medium term, could be just the approach you need for your next financial milestone.
This article is adapted from a piece we recently wrote for the Sunday Times. You can read the original article here.
