Recognising the unique financial challenges women face throughout their lifetime is critical in ensuring a financially resilient future. Armed with education and a plan, women can feel more confident about their financial goals and how they can achieve them. Recently, we invited submissions for a complimentary bespoke financial plan devised by the all-female advisory team at Goodbody. We received numerous entries, and selected three personal stories which feature challenges that many of us will face during our lifetime. Here we present one such story.
In her own words: the financial challenge
In 2021, I welcomed my little girl and became a solo mother by choice. It took three years to conceive her, and I ended up spending in the region of €40,000 to realise my dream of becoming a mother. Having spent a significant portion of my savings on the fertility treatment, I now need to plan for our future.
With this in mind, I am considering moving closer to my parents to give my daughter the opportunity to attend a good school and have the support we need. Such a move will result in higher mortgage repayments, but I believe it will be worth it. I therefore need a financial plan to help me manage my finances during this relocation and as I navigate life as a solo mum by choice. My daughter is solely reliant on me, and so I want to ensure she will be financially secure in the future.
Eve, 44
Solo mum by choice to a three-year-old child and project manager
The financial situation
The financial challenges of fertility treatments and choosing to become a solo parent are rarely discussed. In reality, the financial strain on a single person who wants to become a parent alone is greater than for those in couples – and with an increasing number of women choosing to enter solo motherhood today, it’s crucial to proactively plan for your financial future. Eve is a great example of this.
Dublin-based Eve has a stable career that delivers an income of €85,000 per year. Having spent €40,000 on fertility treatment before welcoming her daughter in 2021, she now holds a savings plan valued at around €100,000 and has invested in other funds that are valued at about €25,000.
Eve’s current home is valued at €400,000 with a remaining mortgage of €150,000. She plans to sell this home, pay off the mortgage, and use the remaining equity as a down payment for a new house, close to where her parents live. However, as she is looking at properties priced at around €700,000, after factoring in her personal cash savings, this will mean a new mortgage of between €350,000 and €395,000 and therefore higher mortgage repayments.
What’s more, Eve actively contributes to her pension scheme, demonstrating a proactive focus on her future. She has an occupational pension valued at €250,000 and she expects to receive full state pension. Her desired retirement age is 65 years old. Meanwhile, to safeguard against any unexpected life events, Eve has life insurance that would provide a benefit of €200,000 to her estate and critical illness cover that would provide a lump sum of €50,000 tax-free to her if seriously ill.
The Goodbody advice
Our recommendations to Eve to better manage her finances during this relocation and ensure financial security for her daughter’s future are focussed on three key areas: ?
1. Building up an emergency pot: following her relocation, Eve will have a tight budget once she deducts a higher mortgage repayment and childcare costs to pay for bills, groceries, household expenses and so on. With this in mind, we would encourage Eve to start building up an emergency pot before she moves to cover life’s unexpected costs. We also asked Eve to determine her entitlement to mortgage interest tax relief on her previous mortgage, single person child carer credit and we also asked her to consider whether she claimed tax relief on her fertility treatment as this may produce an income tax refund for her of €8,000 (€40,000 fertility treatment cost x 20 per cent tax refund rate).
2. Making investments work harder: Eve has investments and pensions. We conducted a risk assessment which showed Eve has a high-risk tolerance. So, it is important to ensure that all of her investments to date are aligned with her overall risk tolerance and future goals. Her future home will become her biggest investment and she wants to make this investment work hard for her by renting out a room, starting in 2025. This would be especially helpful with the increased mortgage payments and rising costs of childcare. Ideally, Eve would plan to keep this rental income within the tax-free threshold under the Rent-a-Room Scheme, which currently sits at €14,000 per annum. We estimate that Eve could earn approximately €800 per month tax free by renting a double bedroom in her new location1. Any extra money earned could also be reinvested or put in a high-yield savings account. We also recommended that Eve keep her cashflow and investments under review.
3. Securing a future for Eve and her daughter: having assessed Eve’s current cash flow in detail, she is in a good position to retire at age 65 and will have enough to live on into her 90s. We also explored a scenario if Eve retired five years early at age 60, but it left her with a diminished spending capacity and a shortfall in income at age 88. Renting a room out in her new house, as referenced above, even just for five years, would increase her income in retirement by €3,000 a year. Looking at her current pension contributions, without making any changes, Eve will have a pension fund of €1,600,000 when she retires at age 65. Eve’s legacy net worth which illustrates all the assets that would materialise in the event of her death (including insurance and death in service cover) tomorrow would be €900,000. As the sole beneficiary, her daughter would be entitled to the parent to child tax-free threshold for gift and inheritance tax, but she would be required to pay 33 per cent tax on an amount above this threshold. Taking the current threshold of €335,000 and Eve’s legacy net worth, this could result in a tax bill in the region of €186,000. However, in time, Eve can explore estate planning ideas to manage this tax liability for her daughter and Eve’s own tax liability should she inherit from her parents, but in the short-term Eve should draft a will and set up an Enduring Power of Attorney. It is likely that if anything were to happen to Eve tomorrow, her daughter would inherit the home she resides in tax-free. There should be no to minimal tax to pay on the remaining assets that her daughter would inherit. However, as Eve’s estate grows in value, we recommended keeping inheritance tax under review such that her daughter would not have a large tax bill to pay. In time, Eve could consider setting up a Section 72 or Section 73 policy for her daughter – the proceeds of a Section 72 policy are tax-free if used to settle an inheritance tax bill and the same applies to a Section 73 policy if used to pay gift tax.
A note on protection and key insurances: we suggested that Eve increase her life cover to adequately provide for her daughter should something happen to her. The increased cover is relatively inexpensive on a monthly basis and would not have a material impact on her cashflow. We also suggested that she look at getting the best mortgage protection cover for her new mortgage and ensure that she has a basic level of health insurance in place for her and her daughter.
A final thought…
At Goodbody, we understand the importance of openly discussing the financial strain associated with fertility treatment and solo parenthood, and we encourage those pursuing or currently navigating solo parenthood to reach out to their financial advisor should they need any support.
For Eve, her story demonstrates that being proactive in your approach to your financial situation pays off. Having made some small adjustments, she can now be confident that her daughter’s financial future is secure.
Please read: For confidentiality purposes, names, monetary sums as well as any other personal details including identifiable characteristics of individuals have been changed. These case studies are illustrative examples only – they do not constitute investment or tax advice or a personal recommendation as they do not take into account the investment objectives, knowledge and experience or financial situation of any individual. Not all recommendations are necessarily suitable for all investors and Goodbody recommend that specific advice considering your personal circumstances should always be sought prior to making any investment. Figures quoted are estimates only. Past performance is not a reliable guide to future performance; neither should simulated performance. The value of your investment may go down as well as up. The value of securities may be subject to exchange rate fluctuations that may have a positive or negative effect on the price of such securities, sales proceeds, and on dividend or income interest.
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