Q. My wife and I are 52 years old. We’re slogging through a lot of expenses, and we’re nervous about the market. Here are the basics: Our two children in private school cost $19,000 a year. College starts for one in 2 years. Both will be in college in 4 years.

We have about $225,000 in tax-deferred retirement accounts. ;We're a one-income household, with my income between $150,000 to $200,000 a year. I'm on commission, so ;my income fluctuates.

Here's my question. We have a $650,000 interest-only mortgage at 6 percent that will need to be refinanced in 2 years. Our home is worth about $950,000. ; We have about $950,000 in a well-diversified, taxable investment account managed by an investment manager who charges a 1 ½ percent to 2 percent fee. Should I liquidate the mutual funds, pay off the mortgage and build up my retirement accounts with the extra cash flow? Or should I stay the course?

I did a practice tax return to see the outcome with no mortgage interest, no management fees to write off and reduced dividends and capital gains, assuming I only had $300,000 in mutual funds instead. I came out ahead tax-wise. But my net worth would be growing slower. Should I pay off the mortgage? ---G. S., by email from Seattle, WA

A. You’ve got a lot of risk there: perilous 50s work, high expenses, high debt, and high-cost investment management. So let’s take it piece by piece.

First, at 52 you can still benefit from the good thing about mortgage debt--- it depreciates with inflation. You’ve got a good shot at returning a lot less purchasing power than you’ve borrowed. So you shouldn’t be in a hurry to pay off the mortgage. If you were 10 years older and closer to retirement, I would not say this because you’d be 10 years closer to living on investment income rather than labor earnings.

Second, whatever the condition of the markets, you’re spending too much on investment management. In today’s markets, with virtually no investment income, fees in excess of 1 percent a year can’t be justified, particularly since they are often in addition to the expense ratios of the mutual funds the manager selects for you.

Here’s an alternative that can be done inside the brokerage industry. Add $50,000 to your investment account so you have an even $1 million. Then find a broker who specializes in American Funds. He’ll get a commission, but it won’t be paid out of your investmen, and you’ll get well-managed, low-expense funds. Many of the American Funds, for instance, have annual expense ratios around 0.60 percent. If your current funds are typical, this move will probably save you nearly 2 percentage points a year.

You can, of course, do the same or slightly better as a do-it-yourself investor. You can do this by searching for good-quality low-cost, no-load balanced funds such as Dodge and Cox Balanced, Vanguard Wellington, Fidelity Puritan, or T. Rowe Price Capital Appreciation fund.

Another way to deal with the mortgage issue is to consider selling your current house and moving to one that costs less. Apply every dime of equity to the price. This will reduce your mortgage debt and annual cash requirements. This isn’t easy to do, of course, but lots of people would feel a lot better if they had less house and more security.

If you don’t want think about downsizing now, you might want to rethink your entire shelter agenda in two years when you take your first step into empty-nesting.

I’d like to hear from readers who think of themselves as “happy downsizers.” I think a lot of readers are thinking about it. So I invite anyone who has done it to get on our forums and share your story with the rest of the community.

For many, down sizing is really “right-sizing.” And either is better than “capsizing.”

On the web:

Here’s a story that might be called Extreme Downsizing: