The true cost of having children later in life

Whenever you decide to have children, one thing you can be certain of is that it won’t come cheap.

However, if you’re waiting until later in life to start a family, it could have more of an impact on your long-term financial plans than you may think. 

Many couples want to ensure they’ve reached a good place in their career, have managed to buy a home and feel emotionally ready to embrace the challenges of parenthood before they start a family.

It therefore comes as no surprise that, according to the Office for National Statistics (ONS), the number of women aged 40 and over having a baby in the UK has rocketed over recent decades.

The latest figures for England and Wales reveal that there were 28,865 births in 2018 by women in this age group, compared to just 6,519 in 1982. 

At the heart of this demographic shift is likely to be the sheer cost of raising a child until they’re 18 years old – estimated to be around £160,000.

So, it’s no wonder that couples are waiting until they’re on a stable financial footing before facing the future with a baby or two. 

Yet, it’s not just the cost of feeding and clothing children that has a big impact on the family finances – it’s the probable drop in disposable income that can provide the biggest, long-term hit.  

Many parents find that at least one partner chooses to work part-time for a number of years in order to fit work around childcare, drop-offs and pick-ups.

The most common arrangement, according to the ONS, is one parent (usually the father) working full-time, while the mother works part-time, until the youngest child in the family is 11. This is the set up for 49% of families.  

And, as well as a drop in income for a decade or more, this arrangement results in other implications.

These include reduced retirement savings for the mother along with possible loss of career progression, reduced borrowing ability for buying a new home or remortgaging, and a greater risk of going into debt if big expenses are incurred.  

There’s no doubt that starting a family in your late 30s or early 40s comes with its own set of financial complications – especially around mortgages, life insurance, tax, savings, pensions and retirement planning.

That’s why, if you’re planning a new addition to the family, you’ll also need a plan for your family finances. That way, when you celebrate your new arrival, you’ll be confident that you’ll have all the resources a growing family needs right now and, importantly, you’ve safeguarded your family’s financial future.

Here are five key areas that will need your attention if you're looking to have children later in life:

1. Mortgages 

Having a family may mean wanting to move to a bigger house or extending your current home. However, if one partner is much over 40, you’ll find that mortgage options begin to shrink.

Lenders typically won’t approve loans that run past 70 or, in some cases 75, which could bump up your monthly payments. For example, a £200,000 mortgage at 3% costs £948 a month when repaid over 25 years but jumps to £1,109 a month when spread over 20 years.  

In addition, the amount you can afford in repayments will be assessed by a lender going through your bills and regular outgoings. When you have a child, lenders are less likely to agree to lend large sums if you’re paying sizeable amounts for childcare.  

Taking on a large mortgage late in life can also hamper your attempts at building up a decent pension pot. With so many factors to consider, it’s well worth speaking to a mortgage adviser to help you decide what the best options are. 

2. Life insurance 

Once you have dependents, life insurance is essential to ensure your loved ones will be provided for if something happens to you.

You’ll need to have enough cover to pay off outstanding and future debts, which could include your mortgage, childcare and your children’s education.

However, life insurance is something that gets more expensive as you get older, potentially doubling in cost between the ages of 25 and 45. If you’re self-employed you may also want to consider income protection cover, which pays out a tax-free income after a few months if you’re unable to work due to illness, accident or disability.

A professional financial adviser is best placed to explore the most suitable life insurance cover options for your particular situation. 

3. Your will 

As with life insurance, the onset of parenthood means it’s essential to make, or update, your will to ensure that if something happens to you and your partner, there are plans in place for your children to be looked after by a named guardian.

It’s even more important to consider making legal arrangements if you and your partner are not married. For example, you can’t assume you’d be able to continue living in the family home if you’re not on the title deeds.

To ensure your plans are set out exactly as you want them and are legally binding, it makes sense to consult a solicitor who specialises in wills. 

4. Tax

Is tax still payable on maternity or paternity pay? If you have a student loan still running, will you have to carry on with the repayments?

As you approach parenthood, there are likely to be many questions surrounding tax that are tricky to figure out and are best answered by an accountant. 

5. Retirement planning, pensions and savings  

If you have a child at 40, it’s likely you’ll still have a dependent when you’re looking to retire. This means you’ll be juggling the cost of raising a child with ensuring your own retirement planning is still on track. Otherwise, by the time you’re touching 60, you’ll have very little time to make up lost ground. 

When you reach your 40s, retirement planning should be a serious financial consideration – but if you have a child, you’ll want to think about their future too.

You may need to accept that if you’re an older parent you could be working for longer and consider boosting your contributions into your pension plan.

There are also a range of options to save for your child to look at – even £10 a week from birth to age 18 in a savings account paying 1% would result in a pot worth £10,000 by the time they turn 18, giving them a great start to their adult life. 

A financial balancing act 

Finding a balance between managing the immediate costs of taking care of your children while also planning for your own (and their) long-term future is key, which is where enlisting the services of an independent financial adviser can really help.

As family life gets more complex, you’ll appreciate the benefit of having an expert adviser by your side to help you make the right decisions.  

Find an expert financial adviser near you.