Forty-plus parents: The struggles of the 'sandwich generation'

The financial hit is bigger if you have children late, and your own parents could need help too. Kate Hughes sees how to cope

Middle age was once considered to be the best period of your life. Kids away at university or flown the family nest for good, and more time and money on your hands to do what you liked when you liked.

For many 40-somethings, however, this happy vision is becoming a pipe-dream. They have to live with the financial consequences of bringing up children later in life, while supporting parents who live longer and may need expensive care.

Experts have dubbed these people the "sandwich generation" and for them, the prospects of stopping work early or funding a comfortable retirement are disappearing fast.

Is there anything they can do now to boost their financial position?

Recently, the Office for National Statistics revealed that more over-40s than ever are having children. Insurance giant Legal & General has estimated that it costs £123,000 to bring up a child to the age of 18, but this doesn't take into account the loss of earnings and pension contributions for parents who find themselves looking after families rather than working.

"By having children later, you are suffering an even bigger financial hit – taking a salary break later in life when you are earning more," says John Beale of independent financial adviser (IFA) Pi Financial Dixon Sutcliffe.

He also warns that the decision to have children later means that the established pattern of financial growth beside family growth is broken.

"This can cause real problems for many modern couples who have enjoyed their lives in their 20s and 30s rather than put money into mortgages, pensions and savings," he says.

"Suddenly they are in their 40s with young children, nothing to show for 20 years' worth of work and limited time left to earn money."

Retirement at 70 or beyond is what's in store for many 40-something parents. And that's if they can find someone to employ them at that age, of course.

"Most people in their 50s and 60s need their last blast of earnings to settle the mortgage and boost their pension," says Alex Pegley of IFA firm Calculis.

"People having children at 40 will be those with dependent kids when they're 55 or 60. They will find it difficult to retire before they are 70."

According to research from engage Mutual Assurance, 46 per cent of parents with children over the age of 25 still support their kids financially in ways such as clearing their debts and paying a deposit on a home. And this is a generation that typically had children in their 20s.

Based on these figures, if parents are now waiting until 40 to start a family, almost half of them could still be supporting those children when they retire.

"Parents with dependent children could find living on their retirement income extremely difficult," warns Mr Pegley. "Giving children the best start is crucial and it is expensive, but older parents should try to keep their own financial futures in mind."

He recommends setting up a savings vehicle such as a tax-efficient child trust fund (CTF) as early as possible, so children have their own money at the age of 18 to get on the property ladder if they wish.

Crucially, middle-aged mothers and fathers could be paying for their own parents as well. The UK has an ageing population, so there is a growing likelihood of new retirees having dependent parents. And if that "sandwich generation" is supporting children too, there is a risk they will run out of funds.

"Money is often needed to provide elderly parents with comfortable accommodation and care in an old people's home. That cost can wipe out savings earmarked for other things," says Anne Young at insurance group Scottish Widows.

"As with all things, preparation is everything," she adds. "If you start saving early enough [in your 20s or 30s] and your parents take out long-term care insurance, that can help ease the pain."

Keith Churchouse at IFA Churchouse Financial Planning says that people who face the twin challenges of paying for both children and parents need financial self-discipline. "Try to build up between three and six months' income on deposit, while ensuring that the mortgage is on the best possible rate.

'Children will be living at home a lot longer in future'

Penny Grossman, 52, from London, has an adult daughter of 24 who still lives at home. She and her husband also support her mother-in-law.

Penny works to pay her mortgage and bills but doesn't ask for rent from her working daughter. "She will eventually move out, and although she works, she just can't afford a mortgage at the moment."

Penny is also used to spending her spare time caring for elderly relatives. "We spend quite a lot of the weekend looking after my mother-in-law. She lives in her own flat at the moment but I am concerned about the costs if she needs to go into sheltered accommodation."

She adds that although families used to look after several generations, that was at a time when the mother might not have worked and had the time to care for others. "That simply isn't possible any more. I have to go to work because everything is so expensive.

"I think children will be living at home a lot longer in the future," she continues. "And with our own parents living longer, the state will have to do something because there will just not be enough money to go round."