Q. I'm a 58 year old divorced woman. I've "worked my way all the way to the bottom," in spite of lots of education and experience. My former husband of 27 years and I owned a real estate company. He's now living in a lavish lakeside house in Austin with his much-younger wife and I'm living a very simple lifestyle. (This is the first time you've heard this, right?)

I work for a bank (job security!) but only make $24,000 in salary. Great benefits. With OT and annual bonus I make about $30,000 plus another $3,000 to $4,000 from managing a couple of rental properties. Those come and go so I can't count on the real estate income.

I have a home mortgage of $42,000 at 8 percent, with 23 years left. I've also got $20,000 in Roth IRAs, about $90,000 in mutual funds, $11,000 in my 401k, and I'll get a small company contributed pension when I retire. I plan to do that when I'm 65 and 7 months. I'll claim Social Security benefits under my former husband's level.

I'd like to pay off my mortgage because my paychecks aren't large enough to make extra principal payments. If I sell one fund in December and another in January I'll spread the capital gains over two tax years. I could then raise my 401k contribution to 15 percent pretax and 6 percent taxable and get the full match from my employer.

Is this a reasonable plan? Or am I better off just not touching the mutual funds? I'm in the camp that says I'm paying a whole lot more than 8 percent on my mortgage because of the amortization schedule and I don't think I've got 23 years left to pay it off on a monthly basis.

---I.D.L., by e-mail

  

A. Congratulations on a well-thought out plan. The current mortgage payment brings no tax benefits and won't be paid off by retirement. Your alternative brings you an immediate income tax saving, captures free matching dollars from your employer, and works to smooth out investment returns between now and retirement.

It will also bring you a level of comfort that you'll enjoy immensely. I've never heard anyone complain about NOT having a mortgage payment. And many people find that not having a mortgage brings a level of serenity to their life far greater than expected.

So paying off your mortgage could be very good therapy--- go for it.

While some would argue that it is silly to give up an invested position that could double over the next 7 years, the combination of the employer match and the power of dollar cost averaging will allow you to invest in equities over the next 7 years. In addition, you are not proposing to devastate your investments. This plan will give you a good shot at increasing your account by an amount equal to what your withdrawal would have grown too if you had left it alone, while still eliminating your mortgage.

The hard part will be making certain that you follow the plan and invest the full amount you are now paying out in mortgage payments.

I think you can increase the chances of doing that by getting an estimate of what your future private pension benefits will be and seeing that financial security is within reach. Assuming a typical defined benefit pension plan and about 10 years of work, your pension would be about 15 percent of income or $300 a month assuming it is based on $24,000 a year. It could be more.

Your Social Security will be about $800 a month, tax-free. Your investments and 401k plan are likely to grow to about $240,000 which could provide a long-term retirement income of $1,000 a month. More than half of this amount will be tax-free, due to the personal exemption and standard deduction.

Add those three and you've got about $2,100 a month before taxes and about $2,000 a month after-taxes.

If you adjust your current income for 401k contributions, employment taxes, income taxes, and other deductions, you're right in the ballpark for maintaining your current standard of living rather than falling off a cliff. That's not the life of a princess, but at least you won't be married to a frog.