(MONEY Magazine) – DANGLING A STEAMED clam's gray sac high over the family dinner table, 12-year-old Sean Satterfield waves the mollusk around and speaks with authority: "It's all in there--stomach, nerves, intestines." He's about to elaborate when five-year-old Audrey interrupts. "Yum," she says, having bravely popped a steamer into her mouth. Her blue eyes twinkle at the taste.

Two such curious and adventuresome kids are as surely bound for college as they are headed for other costly middle-class rites of passage, like getting braces or learning to drive. Their highly educated parents, Doug Satterfield, 43, and wife Marianne Goodfellow, 38, boast five college degrees between them, including Marianne's Ph.D. in sociology, awarded in January from Penn State, and Doug's 1980 master's in sociology from Oklahoma State. "We want them to go to the best school for their interests," says Doug, who earns $43,335 a year as the borough manager of Schuylkill Haven, Pa., the family's coal-country hometown 75 miles northwest of Philadelphia. He pulls down an additional $9,300 as a major in the Army Reserves. "Like most parents," agrees Marianne, who brought in $16,470 last year as a part-time sociology instructor at Penn State's Schuylkill County campus and at Lebanon Valley College in Annville, Pa., "we want the world for our kids."

Problem is, that world starts to spin unsettlingly when the couple contemplate not only the $200,000 or so (in today's dollars) they'll need for their kids' college educations but also the roughly $1.3 million they'll need to fund 30 years of retirement at an income with purchasing power equal to $42,000 today. The queasiness intensifies when they consider how much (or little) progress they've made toward their goals: While the hard-working pair have put aside about $80,000 in various tax-deferred retirement accounts and have been saving $1,600 a year, they should be socking away closer to $4,600 annually to maintain their standard of living should they decide to quit working in 2016. And where does their college kitty stand? On one quivering paw, at best: It totals only about $5,000 in Fidelity stock funds in the kids' names. In short, like millions of Americans, the Satterfield-Goodfellow family has come face to face with one of today's most intimidating (and universal) middle-class anxiety producers: how to save enough--simultaneously--for college and retirement. "We realize it's a big challenge, but we are ready for it," says Doug.

Fortunately, the close-knit clan, who enjoy skiing, sledding, canoeing and roller-blading among other outdoor pursuits, have numerous advantages as they finally begin to concentrate on their goals. First and foremost, the Satterfields' $70,000 combined household income is some 70% higher than the U.S. average for couples their age. Then too, Doug and Marianne each have tax-sheltered 403(b) retirement savings plans available to them at work, and they've both been regular contributors. Doug shuttles 3% of his $43,335 pretax pay into his account, which goes into a deferred-annuity program. Marianne sluices about 5% of her $16,470 salary into her 403(b) plan, 40% of which goes into equity funds and 60% into bond funds.

On the other hand, like many buy- now, save-later baby boomers, the Satterfields are partial to indulgences. One favorite: frequent family excursions to nearby ski resorts and theme parks, costing $3,000 in the past year. Then there are the must-haves: a $2,500 multimedia computer purchased in '94, the $850 camcorder ("to capture important family moments," says Marianne) and $1,000 for master bedroom furniture. Plus, this year they're in the market for an $800 stereo-sound TV. In all, more than a third of the family's $54,000 after-tax income goes for discretionary outlays--40% more than it should be, say financial planners. What's more, the couple's roughly $1,500 in liquid assets (checking and savings accounts) represents only 15% or so of the three to six months of living expenses that most personal-finance experts recommend for an emergency fund. "We're definitely more on the spendthrift side," admits Marianne with a sheepish smile.

Smiling comes easily to Goodfellow, the cheery, soft-spoken daughter of a stonemason and a homemaker who grew up on her family's 150 forested acres in upstate New York. So does managing a hectic, four-person household--or so she makes it seem. Weekdays, Marianne and the kids are out the door of the couple's comfortable $110,000 three-bedroom red-brick home in Schuylkill Haven by 8 a.m. (Doug is usually on the job some two hours earlier.) First she drops off Audrey, a kindergartener, and Sean, a sixth-grader, at the town's elementary and middle schools. Then she heads off to work. Until recently, she taught a sociology course at Penn State's satellite campus in Schuylkill County and, twice a week, commuted 30 miles west to Annville to teach two other classes at Lebanon Valley College. Now she's added a fourth class at Penn State, which will lubricate the family's cash flow by $2,000 this year. "For the first time," she says, "I feel like we'll really be able to save."

They need to. Right now, she concedes, the best saver in the household is none other than Sean. He earns $100 a month after school delivering the Pottsville Republican to 37 homes. He's already got a $645 bank savings account after only 14 months on the job. "I'm thinking I'll buy a car," he muses. Not so fast, young fella. "It's likely," says Doug apologetically (and accurately), "that a good part of what Sean is saving will need to go toward his college costs."

Doug, the son of a homemaker and a railroad man, grew up in hardscrabble blue-collar towns across rural Texas, Arkansas and Louisiana, moving "every two to three years," he remembers, as his father bird-dogged work on the Missouri Pacific. In 1974, after undergraduate study at Texas Tech University, Doug spent three years in the army as a military police patrolman--a stint that explains his brisk, over-and-out manner.

The couple met at Penn State's main campus in 1980 while they were pursuing graduate degrees. They married two years later, getting by at first on Marianne's $16,000-a-year salary as a full-time researcher, plus the $6,000 annual stipend Doug received as a teaching assistant as well as his $7,500-a-year Army Reserve pay. Cash was tight, especially until Doug finished his course work and landed a full-time $25,000-a-year post as the assistant borough manager for Schuylkill Haven, where the family moved in 1989. In 1991, he got promoted to his current job as borough manager--an annual political appointment made by the borough's seven-person council.

Now Doug's typical 60-hour workweeks are spent overseeing an $8.6 million annual municipal budget and handling everything from complaints about crumbling sidewalks and Volkswagen-size potholes to paperwork for six- and seven-figure state and federal grants. Although he admits he is "not tuned in" to money matters at home, Doug is known for his financial smarts on the job. For instance, at his urging the town adopted an ordinance that requires residents to install low-volume flush toilets and showerheads, thereby saving the town's 40-year-old water-treatment plant unnecessary wear and tear. His skill at proposal writing also netted $1 million in grants to refurbish old properties and low- to moderate-income homes, as compared with his predecessor's meager $65,000 grant haul in his last year on the job.

To live the life they wanted even as cash was scarce, the all-American Satterfield-Goodfellows did the all-American thing: They relied heavily on credit cards and loans. The damage? Besides the $69,405 that remains on their $84,000 fixed-rate mortgage (at 7.5%), the couple owe a total of $6,000 on seven easy pieces of plastic (average rate: 13%). They're also shelling out $150 a month to pay down the $4,000 home-equity loan (at 10.5%) they took out four years ago to buy a new furnace. And though their 1985 Toyota Camry is paid off, they still owe $8,777 on their 1992 model (interest rate: 9.5%).

On the other side of the ledger is the couple's retirement savings. Doug, the more risk-averse of the two, has put away a total of $31,997 in two tax-sheltered 403(b) plans--one from his days at Penn State and the other through the borough. He also has $6,152 in an IRA with $2,080 invested in Fidelity Intermediate Bond Fund, $2,828 in Fidelity Growth & Income, $1,243 in Fidelity Cash Reserves Money Market, and $864 in USAA Mutual Growth & Income Fund. Luckily, he can count on a military pension of $14,400 a year by age 60. Also, he'll qualify for a state pension if he works for the borough, county or state government for a total of 10 years--he's got more than three to go. At age 65, the plan would pay him $4,800 a year if he leaves the state payroll after 10 years or $27,555 a year if he remained until retirement age (which he thinks unlikely). Marianne's retirement stash now adds up to $47,600.

Despite their laudable start at saving for retirement, the Satterfields realize they should be putting away more--an extra $250 or so a month, according to most financial formulas. And they ought to be setting aside more cash for the kids' college education. They've tried, says Marianne, but "something's always come up." One year it was refurbishing a bathroom ($2,000); then it was the annual $1,200 they needed since 1989 to pay for Marianne's Ph.D.--a degree she figures should eventually net her a full-time university teaching job at roughly $25,000 a year.

Another soft spot in the Satterfields' financial life is insurance. Back in 1983 when Sean was born, the Satterfields sprang for a $50,000 cash-value life insurance policy for the baby (cost: $180 a year). "We took it out for when he's older," says Doug, shrugging. Current cash value: a skimpy $946. For himself, all Doug carries to secure the family's future is a mere $120,000 in term life insurance--a $45,000 policy through the military, $25,000 from the borough and a $50,000 term policy he took out on his own. Marianne has a $50,000 life insurance policy of her own (total annual premiums: $247.50 a year). Further, Doug alone has an employer-paid disability policy that pays only $200 a month for six months should he be unable to work. If injured on the job, he'd still get only 90% of his salary--and for just one year at that. Says Doug: "I've been very healthy, so that's given me an artificial sense of security."

Which, clearly, has been fading of late. But with more cash coming in, the graduate degrees paid off and the children in school full time, the Satterfield-Goodfellows feel optimistic. "Even if there are tough compromises," says Marianne, "we're ready."

THE ADVICE

To help the couple put some punch in their finances, Money consulted financial planner David Bugen of Morristown, N.J., who specializes in saving for retirement, as well as Raymond Loewe, president of College Money in Marlton, N.J., a college planning firm. Both experts agree:

Act immediately to secure the future. "As it is, if Doug loses his job, becomes disabled or dies, that would mean financial devastation for the family," says Bugen. Doug needs an extra $240,000 in term life insurance for the next 15 years and a disability policy that would replace at least 60% of his income through age 65. For more life insurance, Bugen recommends Doug's current provider, USAA (cost: $600 a year), or Northwestern Mutual ($400, subject to change after 10 years; 414-271-1444). For a disability policy, he suggests Provident Life & Accident Insurance Co. ($749 a year; 800-251-7420). To help cover these costs, they should consider raising the deductibles on their auto and homeowners insurance policies to $500, says Bugen, which could free up roughly $76 a year by reducing their premiums. "Marianne doesn't need to take out more life insurance, because she's not the main breadwinner," he says.

Create an emergency cushion. Before maxing out on retirement savings, Doug and Marianne should save at least $10,000 to tap for emergencies. How? First, suggests Bugen, surrender Sean's life insurance policy and transfer the $946 cash value into a money-market fund, such as Vanguard Pennsylvania Tax Free (3.2% five-year average annual return; 800-851-4999). Then add at least $300 every month to the account by slicing discretionary spending by about 40%, cutting their gifts, contributions, entertainment and household expenses.

Consolidate debt. To help reduce loans and trim outgo, Doug and Marianne should get into the habit of paying with cash rather than using their credit cards, recommends Bugen. They can save $360 in annual interest charges by consolidating their seven-card $6,000 debt onto one charge card with the lowest rate (see Money Monitor on page 53 to find credit cards with low rates).

Save for retirement now, and worry about college later. "You can always take out college loans," advises Loewe. The couple should start by rejiggering their investments to achieve higher returns and lower fees, says Bugen. He suggests Doug reallocate his IRA investments, with the money going into the Fidelity Growth & Income Fund (up an annual average of 21.2% in the five years to Jan. 1; 800-544-8888). In his 403(b) plan through the borough, he should switch from a variable account, which is invested primarily in equities, to an account with a fixed rate, which would save him 1% on fees. Both Doug and Marianne ought to reallocate their 403(b) investments, says Bugen, so that each has 50% in equities and 50% in fixed-income securities. That way, they'll have a better than passing shot at the 7% after-tax annual returns they need and at the same time satisfy the more skittish Doug.

Get on track for a retirement countdown. Because Doug's job as a political appointee is insecure and he won't be vested in his pension plan for almost four years, the couple shouldn't count on getting any pension from the borough at all. Without it, they have to more than double the $1,600 a year they're saving now, to $4,600. In another 12 years when Doug is 55, their mortgage will be paid off (assuming they don't move to a new house) and they will have an extra $8,700 a year to invest. They should put that amount in a no-load, growth-oriented mutual fund such as Vanguard Index 500 (five-year average annualized gain: 16.4% to Jan. 1; 800-851-4999). "Of course, that's also 10 years from now, and they'll have to investigate which mutual funds are best for them at that time," says Bugen.

Steer the kids to less expensive schools. Despite their wish to send their children to colleges of their choosing, Marianne and Doug must think about what's affordable, or else they'll derail their retirement savings, says Loewe. Additionally, he says, they shouldn't pass up any tuition breaks they may get if Marianne is teaching full time. Typically, a school will shave 50% to 75% off tuition costs for the student of a faculty parent.

To be frank, says Loewe, with so little saved for college and with tuition bills looming in six years for Sean and 13 for Audrey, the family's best bets for funding higher education are two low-interest federal loans: the Stafford Loan, taken out by the student (current rate: 8.3%), and the PLUS loan (8.9%), which is for parents.

Meanwhile, forget saving in the children's names, says Loewe. Why? Because in calculating whatever financial aid the family might qualify for, money in children's names reduces the ultimate grant more than does cash held in the parents'.

A few weeks later, the couple had begun the process of buying an extra $250,000 in term life insurance for Doug and cashing out their son's policy. They'll use the $946 to build an emergency fund. Meanwhile, they prepared to rein in spending by consolidating their credit-card debt onto the card with the lowest rate (12.5%). And, "I ripped up all but two credit cards," says Marianne. "From now on, we pay cash."