Q. In a recent column you talked about the risks of making mortgage payments after retirement. But this left me wondering: What is the alternative? If one has a mortgage on the day of retirement and one pays it off, then 100 percent of that capital is now tied up in the house. So it has zero chance of earning anything. Are you saying: Pay off all mortgages upon retirement, or sell the home and become a renter? ---M. S, by email from Nashville

A. The answer depends on your personal balance sheet. It also depends on your income sources at retirement. You can get an idea of how the factors interrelate by considering these three examples.

The Abundant Net Worths: retired with a large pension, $1 million in taxable account assets, $500,000 in tax-deferred account assets, and a mortgage balance of $200,000 at 5.5 percent. They live in an area with high real estate taxes and a state income tax.

Their corporate pension alone is high enough that all of their Social Security benefits have been taxed well before they count any income from their retirement savings. As a result, withdrawals from IRA accounts to support mortgage payments won't cause any additional Social Security benefits to be taxed.

In addition, their real estate taxes, state income taxes, and charitable contributions put their itemized deductions above the standard deduction. So every dollar of interest deduction they add will reduce their income tax bill.

For this couple, a home mortgage amounts to modest leverage on their personal balance sheet. They can support the mortgage without any squeeze on their personal spending. For them, a mortgage can be a good thing. They are exceptions.

The Prudents: retired without a corporate pension. They have $200,000 in taxable account assets, $500,000 in tax-deferred account assets, and a $50,000 balance on their mortgage. They elect to pay off the mortgage because much of the payment is principal, not interest. Also, most of the interest won't be deductible because their itemized deductions won't be far over the standard deduction. Worse, withdrawals from their tax-deferred accounts will cause additional Social Security benefits to be taxed. In addition, reducing their taxable account assets from $200,000 to $150,000 won't materially reduce their financial flexibility.

While the money they take from their taxable account to pay off the mortgage might earn more than the 5.5 percent interest they are paying, they know that getting a return of 5.5 percent is neither easy nor without risk.

The Housepoors: retired without a corporate pension. They have $100,000 in taxable account assets, $200,000 in tax-deferred account assets and a $100,000 balance on their mortgage. Fortunately, their house is worth $400,000. If they pay off the mortgage from their taxable accounts, they will have no flexible financial assets. Every dollar taken from their remaining tax-deferred financial assets will add a dollar to their taxable income. Worse, it may trigger the taxation of 50 cents to 85 cents of Social Security benefits.

Basically, having a mortgage on their house will commit them to a level of expenses that is likely to force them to make excessive withdrawals from their financial assets. It will increase the odds that they will run out of money long before they die.

The best thing the Housepoors can do is downsize their house. That would allow them to put their $300,000 of home equity to better use. By moving to a smaller $200,000 house, for instance, they can pay cash and still increase their financial assets by $100,000. They won't have a mortgage payment, their home operating expenses will decrease, and their investment income will increase. Overall, its a better balance for retirement. (Note: I am not considering sales commissions, etc., in these figures.)

This is not a one-size-fits-all question. Nor is it a simple matter of assuming that your home equity could be earning much more. For most people approaching retirement, paying off a mortgage is the surest way to (1) reduce cash flow requirements and (2) bag an effective yield that is higher than you can get in most fixed-income mutual funds without the risk.

To put the yield issue in some perspective, most home mortgages have interest rates between 5 percent and 6 percent. According to the Morningstar mutual fund database, there were some 3,700 fixed-income mutual funds. Their average trailing 12-month yield at the end of September was only 4.69 percent.