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Saving for Retirement

With Five Years to Go

It's time to start shifting some money to fixed-income securities for safe keeping.

If you're more or less on track with your savings, shift about half your investments into a bond fund or zero-coupon bonds with staggered maturities so a portion of them will mature as each year's tuition bill comes due.

Savings-bond returns are too small to waste your money on when you're saving long term, but with five years to go you could use savings bonds for the fixed-income portion of your portfolio if your adjusted gross income is less than $86,400 (filing jointly). At that threshold any earnings used for college tuition and fees will be totally tax-free.

If your adjusted gross income is higher, the earnings are still free from state and local taxes, but the taxable-equivalent return might be better on a five-year CD.

See if you're eligible for financial aid. If you're just starting now, you could shift into heavy-duty saving mode, search for extra sources of income and slash your spending. But first, check out ways to lower the tuition bill. Go to the College Board's Web site and calculate your expected family contribution -- the amount of money financial-aid officers estimate that your family can afford for a year of college. The figure will change if your income changes by freshman year, but it will give you a general idea how much you'd need to pay before financial aid kicks in.


Move money around to improve your financial-aid picture. For example, if you sell stocks after January of your child's junior year in high school, the earnings will be considered income on your financial-aid form. But if you sell any big winners now, the proceeds will be considered assets and count for much less in the aid formula.

With Ten Years to Go
With One Year to Go