EDITOR'S NOTE: As Americans continue the uphill climb to economic recovery, deciding where to invest is only part of the battle. In our special report, "Build Your Financial Life Plan," we offer a complete strategy for all aspects of your financial well-being. We've also developed an interactive tool to help you create your own plan. To get your customized strategy, go to www.smartmoney.com/lifeplan.

Bob and linda gillett enjoy taking cruises to Europe and going out for nice dinners in their San Diego neighborhood. But unlike some of their fellow retirees, they don't have to strain financially to indulge themselves.

That's because, right before they retired, they eliminated their biggest monthly expense: their mortgage. For several years the couple added $300 to each home payment so they could retire the loan 10 years early. Now they estimate they've got an extra $600 in the budget each month. "We don't ever think about whether we can afford things," Linda says.

The finances of the family home -- often where the bulk of wealth is tied up -- are playing an ever larger role in life planning. For people approaching retirement, the most compelling reason to pay off a mortgage early is to free up money for other expenses. The issue is taking on more urgency, experts say, because the high prices generated by the housing bubble left middle-aged homeowners more likely to be indebted. According to the Employee Benefit Research Institute, 40 percent of household heads age 55 and older had housing debt in 2007, up from 24 percent in 1992.

Still, prepayment isn't right for everyone. Bankrate.com senior financial analyst Greg McBride says it's not worth it if it keeps a family from meeting other savings goals or forces them to liquidate investments. Also, if the mortgage balance is large enough that it still creates a significant tax deduction -- typically, above $100,000 -- it's often better to leave it be.

For many homeowners, there's an easier mortgage move: It's a great time to refinance, with rates near record lows. A home-owner who lowered the interest on a $400,000 mortgage from 6.5 percent to 5 percent would see her monthly payment drop by about $380.

There's no shortage of other ways to convert home equity to cash. Interest rates on home-equity loans and lines of credit are far lower than those on credit cards, though most banks now make you jump through more hoops to get them. Financial adviser Ric Edelman calls such loans "the least evil approach" for financing unexpected expenses like major home repairs or medical bills. And some investors whose retirement savings are falling short of their goals may benefit from reverse mortgages, which convert home equity into a stream of payments. Since 2004 the number of federally insured reverse mortgages has more than tripled, to 114,692 last year. Their biggest
drawback: very high transaction fees. "I look at them as a last resort," says Jeanne Bradford-Odorico of Bradford Wealth Management.

Of course, homeowners can always profit from their home the old fashioned way, by selling it. Experts at the Joint Center for Housing Studies at Harvard say remodeling should pick up this year, after Americans spent a paltry $114 billion on it in 2009, barely half what they spent in 2004. But homeowners appear to do best when they focus on the basics. In a recent industry survey, the projects that recouped more than 65 percent of their costs included entry door replacements, roofing replacements and basement remodels -- not as flashy as a marble Jacuzzi, but the kind of improvement that looks good on the market.