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The Money Doctor: Lump-sum redundancy options

Q I am being made redundant, and while I have another job lined up, I'm unsure as to what to do with the redundancy of €56,000.

I only have a small mortgage and my current pension is underfunded. I also have no other savings and am 47 years old. Can you advise please?

Tony, Dun Laoghaire

A First of all, you should have a 'rainy day' fund -- for emergencies, loss of income or that investment opportunity. The recommended level is between three and six months annual income in an accessible deposit account. If we assume your new job pays around €50,000, then I would be putting at least €20,000 of your redundancy cash into a demand account.

The small mortgage should also be addressed -- depending on what "small" is and what your mortgage interest rate is. If you are on a 'tracker', with the likelihood of the current ECB rate of 1pc remaining for the next two years, it might make better sense to invest instead at higher deposit rates. The worst standard variable mortgage rate is 5.9pc and if this is your rate, then you might be better off reducing your mortgage liability.

Finally, in relation to the underfunded pension, I would wait until you are settled in your next job before addressing the funding. You need to take advice before committing any further funds into the existing pension.

Lifeloans: last resort?

Q Can you advise me on what I should do in relation to my mortgage-free home. I am single, with no dependents and aged 67. I have no income other than the State benefit of €230.30 per week. I do not have any savings but my home is worth around €700,000.

Alice, Malahide

A This is going to be an issue for many people in the coming years as Ireland's demographics show an ageing indebted population. Certainly, if you have an asset (i.e. your home) and want to stay in the house, there is no point in living in squalor.

There are three providers of lifeloans. Essentially, you might be eligible to take up to 50pc (or more with one provider) of the value of your home and pay nothing -- no interest and no capital repayment -- until you pass on when your representative at that point settles the debt. As a rule of thumb -- the debt doubles every 10 years, so if you borrow say €200,000, then in 10 years' time at age 77, you will owe €400K, at age 87, you'll owe €800K and at 97, you'll owe €1.6m. Remember, the lender has to wait until you die or you transfer to a nursing home.


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