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Dr. Don, I work as a civil servant for the U.S. government in Maine. I turn 35 tomorrow, and I am married with five kids ranging in age from 2 to 9. My wife stays home with our kids. My annual salary is about $75,000, and I have been contributing the maximum amount to my government thrift savings plan (10%, with a 5% government match). I have about $127,000 in this account now. I also have another $130,000 in stocks. I plan to use this money to help my kids through college. I currently have another $70,000 of equity in my home. My hope is to retire around 65. If I continue to max out my thrift savings plan (TSP), will I have enough money for retirement? The portfolio for the kids has grown significantly over the past four years. While most of 2000 was painful, I am still confident about most of the stocks I currently own. Given that this money is to pay for my kids' education, is the mix too risky? Any other advice you would like to share would be appreciated. The retirement money is all invested in the Common Stock Index Investment (C) Fund of the government's thrift savings plan. The C Fund is an all-stock fund that tracks the S&P 500. The TSP with my Federal Employees Retirement System pension and Social Security make up the three legs of my federal retirement. I look forward to reading your comments on these investments. Thanks, J.P.


Happy birthday. You've made great strides in both funding your retirement account and investing for the children's college educations. If your current investments in the thrift savings plan average an annual return of 10% over the next 30 years, they will be worth about $2.2 million. Continuing to contribute to the thrift savings plan at 10% of your annual income, along with the 5% match, brings the total number closer to $4.5 million. (This assumes annual salary increases of 2%.) Combine the TSP with both a federal pension and Social Security benefits and you should have retirement knocked. You may even want to consider throttling back on these contributions while funding the children's college expenses. For the uninitiated, the government offers three different investment vehicles in their thrift savings plan:

Government Securities Investment (G) Fund: invested in short-term, risk-free Treasury securities that are specially issued to the plan.

Common Stock Index Investment (C) Fund: invested in a stock index fund that holds all of the stocks in the Standard & Poor's 500 stock index.

Fixed Income Index Investment (F) Fund: invested in a bond index fund that holds a large representative sample of the securities in the Lehman Brothers Aggregate Bond Index.

Thirty years from retirement, I don't have a problem with you being 100% in stocks in the TSP. That said, I think that you need to include some bonds and cash in your portfolio. Cash investments can provide liquidity in a financial emergency, and your planning horizon for college tuition payments is short enough, at least for the oldest child, to consider having some fixed-income (bond) investments.

With 23% of your financial assets invested in

Applied Materials




National Semiconductor

, you've got too much money invested in the semiconductor industry. Try to minimize your tax hit by offsetting capital gains with capital losses and ordinary gains with ordinary losses. Either your tax advisor or

IRS Publication 550 --

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TheStreet Recommends

Investment Income and Expenses

-- can provide you with greater detail on this topic. I'd like to see cash and fixed-income investments somewhere between 10% and 15% of your portfolio and for that percentage to creep higher as your children approach college age.

I like using

Sallie Mae's

college cost

calculator but there are many different sites that have calculators. What I haven't found is a calculator that will allow you to input multiple children's ages and their college preferences and then spit back a number. If a reader sends me a site reference for a calculator that will do that, I'll mention it in a future column.

According to, Maine's

Section 529 College Savings Plans

are fairly recent offerings. In fact, the prepaid tuition program will be new this year, so I don't have any details for you on that product. The

NextGen College Investing Plan

could offer you some tax breaks that you're not seeing now in your taxable portfolio. Maine doesn't tax the investment earnings in the account, and the federal government taxes qualified distributions at the beneficiaries tax rate. These accounts have special gifting provisions that allow you to contribute up to $50,000 to one beneficiary without invoking a gift tax. It's also easy to change beneficiaries to another family member if the named beneficiary doesn't tap or tap out the account. There's some lack of flexibility in how the money can be invested and you want to make sure you understand how the investment manager is getting paid before signing up for this product.

Still, with the recent changes in long-term capital gains rates, the long-term holdings held in your name in a taxable account are going to be taxed at rates very close to what your child's income tax bracket might be when taking distributions from a Section 529 Plan. Look before you leap into this type of plan.

Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at .