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5 Pieces of Free Financial Advice You Can't Afford to Take A lot of the "commonsense'' advice is why a lot of people have little or nothing set aside for retirement.

By Pamela Yellen

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When it comes to conventional financial wisdom, I'm in the same school as Walmart founder Sam Walton when he said, "Swim upstream. Go the other way. Ignore the conventional wisdom."

By definition, conventional wisdom is what everyone just assumes to be true, because, well, everyone else assumes it's true. Or, as illustrated in a quote often attributed to Will Rogers, American philosopher and humorist, "The problem isn't so much what people don't know; it's what people think they know that just ain't so."

Free vs. fact-free.

There's probably no area where this is truer than the free financial advice that many people take for granted. It's almost always based on the conventional wisdom, and falls apart when you look at it more closely.

Now, free isn't always bad. Some free advice is basically harmless because it costs you little or nothing if it's wrong: "You should wear these shoes with that suit." "Try the catch-of-the-day. You'll love it!" "I think you should turn left here."

But when it comes to your money, bad advice can be much more costly, both now and for the rest of your life. There are a couple of problems with free financial advice. First, the person giving it to you has no responsibility for what he or she is saying. And, second, advice you read online, in print, or hear on the radio or television is generalized, cranked out for a mass audience. Nothing says it's the right advice for you.

Here are five pieces of dumb financial advice that most folks assume are true, but are not.

1. After you retire, your basic expenses will be much lower.

Why would anyone think this? Your utilities, groceries, and home and car insurance costs will not be less. Your healthcare costs will likely be more. One commonly cited study says a 65-year-old couple retiring now will need $260,000 just to cover out-of-pocket healthcare costs in retirement, plus another $255,000 to cover one average stay in a nursing home.

Many people may assume they'll be able to save because their kids will be grown. Don't count on it. One Pew survey found about six-in-10 parents in the U.S. (61 percent) had helped their adult kids with finances in the previous year. About one in 10 grandchildren are living with their grandparents, and 15 percent of 25- to 35-year-olds were living in their parents' home as of last year.

Related: Why Do Half of Millennials Still Live With Mommy and Daddy?

When you retire, you'll probably want to travel more, improve your home and garden or enjoy your favorite hobbies, all of which take money. So even if you don't end up caring for your grandkids or financially supporting your kids, you shouldn't count on your expenses being lower as you get older.

2. To build wealth, you must be willing to accept risks.

Like those old cigarette commercials that promoted health "benefits" of smoking, we are constantly bombarded with the message that Wall Street promotes financial security through risky investments. Yet despite the current record run of stock prices, we know it won't last. In case your memory is getting fuzzy, recall:

The S&P 500 lost 49 percent from March 2000 to October 2002. Many investors -- myself included -- had moved their money into NASDAQ tech stocks, which plunged 78 percent during that 2½-year period. Then the S&P 500 peaked again in 2007. But by March of 2009, it had plunged 57 percent. That makes two heart-stopping losses of more than 49 percent, just since 2000!

So don't buy this most pervasive piece of dumb advice. Millions of Americans have opted for steadier, safer ways to build a healthy nest egg. If you're a gambler who can't resist the Wall Street casino, then invest only money you can afford to lose, or don't mind waiting 20 years or more for the market to recover.

3. You'll come out ahead by deferring your taxes.

Deferring taxes is like sitting on a ticking time bomb. Sure, politicians always seem to be talking about tax relief, but what direction do you think tax rates are going over the long term? Most people believe they will increase. So if you're successful in growing your nest egg, you're only going to end up paying higher taxes on a bigger number.

Related: How to Leverage Real Estate Tax-Deferral Strategies to Grow your Business

In addition, financial planners and CPAs are seeing the retirees' tax rates double -- or more. That's happening because the Required Minimum Distributions retirees have to start taking around age 70½ are pushing them into a higher tax bracket.

4. Fees for mutual funds are negligible compared to returns.

This rationale is often used to sell people on mutual funds, but the reality is fees take a huge bite out of your savings over time. According to the Department of Labor, fees of only 1 percent can slash the value of your retirement fund by 28 percent over 35 years.

Think you're not paying that much? Check again. Three of the largest mutual funds available to 401(k) participants have fees ranging from 1 to 1½ percent. On average, if you're in a small 401(k) plan, you're paying 1.9 percent in fees every year. The average fee for a large plan is 1.08 percent per year. This means almost every 401(k) participant is losing at least one fourth of their retirement account's total value over 35 years! This is a perfect example of dumb "free" advice that can end up costing you a fortune.

5. Pay off your debt before trying to save money.

This bit of conventional "wisdom" is like one of those Chinese finger traps many of us remember from childhood, those little woven straw tubes where the harder you tried to pull your fingers out, the more they got stuck. Unless you already have a substantial stash of liquid savings, simply focusing on reducing debt leaves you vulnerable. Every emergency or unexpected expense will send you right back into debt, no matter how hard you've worked to pull yourself out.

Related: 6 Steps to Get Out of Debt and Stay Out of Debt

To get out and stay out of the debt trap, you have to also prioritize saving while you pay down debt.

Don't follow the majority just because it's the majority. The majority doesn't know any more than you do. As Mark Twain noted: "Whenever you find yourself on the side of the majority, it is time to pause and reflect."

Things to think about.

There's a simple three-question test to consider when deciding whether to follow a particular piece of financial advice:

  1. Will this advice give me peace of mind and let me sleep at night?
  2. Will it help me get where I want to go without taking unnecessary risk?
  3. Will it allow me to be in charge of my money and my financial future?

If you ask these questions, and the answer is yes to each, that's a sign you have found sound financial advice that you can trust.

Pamela Yellen

Financial security expert

Pamela Yellen is a financial security expert, a two-time NY Times best-selling author and President of Bank On Yourself. Pamela's latest book is "Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans – and How to Avoid Them."

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