Q My wife and I own two homes, one we live in, one we rent. We want to refinance both of them. We found a great deal on a 12-year mortgage, so that means by the time we are about to retire both our mortgages would be paid off. Could this actually be a negative thing, because then we will not have all that interest to deduct at tax time? Should we then refinance into a 15- or 20-year mortgage? Or is there some other way to get a tax break once your mortgages are paid off?

STEVE, ST. PAUL

A It was commonplace to hear during the real estate borrowing boom of 1997 to 2007 that the old wisdom about entering retirement without a mortgage was simply old-fashioned finance. Well, if that's the case, count me among the old-fashioned. Don't let the tax tail wag the home-investment dog.

Yes, by paying off your home mortgage you will lose a tax deduction. But the trade-off for greater security is well worth it. The brutal combination of a bear market, falling housing values and the recession punctuates the point that owning a home debt-free in our golden years is a critical personal financial safety net for many people. Imagine 12 or so years from now when you're contemplating retirement and we fall into another recession. Wouldn't you want to be debt-free? What's more, you'll earn a decent rate of return on investment by paying off the mortgage. The value of the mortgage interest deduction shrinks as the loan matures anyway.

Now, I believe this perspective applies to most people with their homes, their residence. Your other property is really a small business with a different cash flow and tax situation. A home and a rental property are very different investments. So you'll need to put aside your homeowner hat and put on your small business green eyeshade and run the numbers. However, my best guess is that the result will be the same: Enter retirement debt-free.

There are many sensible ways to shelter income from taxes. For example, if you qualify, I would fund a Roth IRA over the next 12 years as you near retirement and pay off the mortgage. The gains in your Roth will be tax- free when you withdraw the money. The tax-exempt bond market is a bit of a mess right now, but investing in high-quality municipal bonds is a classic way to cut down on your tax bite in retirement. Similarly, there are a number of "tax-efficient" mutual funds designed to minimize the annual tax hit. But with all these strategies, make sure you like the economics of the underlying investment and then take into account the tax advantages. Putting the tax impact first is a common recipe for investment disappointment.

Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org.