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Back in the day, when their stocks were flying high, Colleen and Daniel Ganzer would plug their savings information into financial calculators and smile.

It was early 2000, they were still in their mid-30s, and Dan's 401(k) plan was worth a quarter of a million dollars.

Five years and one tech-stock meltdown later, things look a lit tle different. They've continued to save and have added to other accounts, but the 401(k) account stands at $105,000 - largely because of losses on his own company's stock - Lucent Technologies.

And they are that much closer to retirement and to college for their three kids - Connor, 10; Evan, 8; and Owen, who turns 5 tomorrow.on Monday.

The Ganzers' total estimated college costs: Nearly $500,000.

Their current investments for retirement and college, not counting home value and insur ance but including some extra money for college from family members: $328,400.

Their situation is far from dire. But, like many families, they face significant challenges in trying to save for retirement and college simultaneously.

"I have gone from the point where, according to various financial planning software, I never needed to put another dime away, to needing to work for another 57 years to comfort ably reach my retirement goals," Dan Ganzer, 41, said in a letter requesting a Money Makeover.

While he's doing everything he can to stay fit, including running several miles most days of the week, he had been hoping to retire in his 50s, not 90s.

Dan has worked at Lucent 19 years, starting when it was part of AT&T; before the 1996 spinoff of Lucent, and working his way through various jobs at the company's campus in the Chicago suburb of Lisle, most recently as a project developer for software and hardware systems.

But the telecom meltdown of the past five years has been brutal, punishing Lucent's stock price, depressing workplace mo rale amid mass layoffs and resulting in big cuts to retiree benefits.

"If the industry turns around I'd love to stay until 65," he said. Realistically, he's starting to plan for a second career. He has started investigating programs that help executives from the business community get their teaching degrees on an acceler ated path. He's exploring the notion of being a high school math teacher.

Colleen Ganzer, 40, worked as a marketing manager for a drug and grocery-store chain until Evan was born. With Owen starting kindergarten this fall and the college countdown ticking, she's starting to consider going back to work part time.

Colleen and Dan want to pay for the bulk of their sons' college costs, which will total about $450,000 given the couple's prediction that their kids will opt for four-year universities but not the priciest private schools, according to Mark Balasa, a principal in wealth management firm Balasa, Dinverno & Foltz LLC.

You're right on the razor's edge of meeting your goals and retiring by 55," Balasa told the Ganzers after reviewing their portfolio. "With a couple of small tweaks - Colleen works a little, maybe Dan works a little longer - their situation looks very good.

"But like most families, there's one pitcher of water coming in for income and 15 glasses to fill," Balasa said.

How to prioritize?

"College is extremely impor tant," Colleen said. "I had mine paid for and it was great not having that debt. I'd like to be able to give that to my kids."

But with three of them very close in age, and with so many career variables ahead for the couple, the Ganzers don't want to load up too much in college accounts in case they'll need money for retirement.

They already have $16,000 saved in Uniform Gift to Minors Act accounts and another $24,000 in gifts from family members stashed in Coverdell Education Savings Accounts, in which annual nondeductible contributions grow free of fed eral income taxes.

They had hoped to keep socking away money in their Roth individual retirement accounts, dipping into them as needed for college.

That strategy makes a lot of sense, as long as the Ganzers are sure they won't need the Roths for retirement, according to Karen Chan, an extension campus educator in consumer economics at the University of Illinois.

Balasa, however, urged them to start funding 529 plans, which also grow tax-free if used for col lege expenses, with no income limitations and no withdrawal penalties, as can happen with IRAs.

But Dan and Colleen are underwhelmed by the investment choices and fee structure of Illi nois' 529 plan, called Bright Start. And Illinois punishes fam ilies who open plans in other states, disallowing state tax deductibility not only on contributions, but earnings as well.

Rounding out the overall fi nancial recommendations, Balasa suggested the Ganzers add about $1 million in life insurance and long-term-care insurance.

He also suggested diversifying out of Lucent stock and some current other single-company stocks over time and bulking up on fixed-income investments and lower-cost index funds. On a scale of 1 to 10, Dan said his risk tolerance was a 7 or 8, while Colleen's is more like a 3.

"To their credit, the couple has done an admirable job of hitting almost all the asset classes, but there's a mismatch of sorts on risk. They don't have to swing for the fences with all that stock - they could add more bonds and get a smoother ride," Balasa said.

Taking in the advice, Dan said he's feeling a bit more comfort able about his retirement pic ture, but said he'll go slow on the proposed changes.

"The easiest choice on college is to follow Karen's advice and not move into 529s, which we were leaning toward anyway," he said, though he acknowledged he may have to go into the col lege plans if Colleen starts work ing again and they hit income limits on their Roth accounts.

"I'll start closing up some of our DRIP accounts [dividend reinvestment plans for single stocks]. Mark made a strong recommendation to go into bonds, but I'm not as familiar with them, and it seems to be my history to get into things at exactly the wrong time," he said. "I'll have to do more research first."

Janet Kidd Stewart is a Your Money columnist.

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