Tony Robbins warns U.S. workers on Social Security, 401(k)s

While striving to support themselves and their loved ones financially, Americans frequently contemplate their long-term goals, including retirement planning, securing Social Security benefits, saving for the future, and making wise investment choices.

Motivational speaker and personal finance author Tony Robbins discusses his view on one conventional fact about 401(k) plans for which he believes a better solution exists.

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First, it is important to note that Robbins believes in the power of employer-sponsored 401(k)s as retirement savings tools. Because Social Security monthly payments are not enough alone to live on, contributing to one’s 401(k) — preferably along with a tax-advantaged IRA (Individual Retirement Account) — is an important task.

In particular, if an employee’s company offers a Roth 401(k), it’s a good idea to choose that option. Robbins argues that taxes are likely to increase during retirement, making the tax-free withdrawals from Roth 401(k)s especially appealing. Contributions to these accounts are made with post-tax income.

He extends this reasoning to Roth IRAs, emphasizing their financial benefits compared to traditional IRAs. With Roth IRAs, taxes are settled up front, allowing retirees to make withdrawals without additional tax obligations.

Related: Tony Robbins sends strong message on Social Security, 401(k)s

Robbins mentions that retirement savings, investments and Social Security benefits are commonly referred to as a nest egg and safety net, but he prefers to use an alternative term for the investment component.

“I call it your money machine because if you continue to feed it and manage it carefully, it will grow into a critical mass,” he wrote in his book, Money: Master the Game.

But Robbins has a warning about a commonly used strategy often implemented in 401(k)s.

Personal finance author and motivational speaker Tony Robbins is pictured. Robbins explains his view that there are more effective ways to invest for retirement than with target-date funds that are offered in many 401(k) plans.

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Tony Robbins warns about 401(k)s and target-date funds (TDFs)

Robbins explains that about 90% of 401(k) plans require pay-to-play fees in exchange for placing a mutual fund as an available option.

These fees result in a limited selection of funds from which to choose — and a contributor ends up selecting a fund that is designed to maximize profits for vendors, brokers and managers.

Robbins believes that the target-date funds listed in 401(k) plans may be the most expensive and marketed creation to find their way into a plan’s investment options.

“Despite being the fastest-growing segment of the mutual fund industry, target-date funds (TDFs) may completely miss the mark,” Robbins wrote.

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Robbins explains a bit about how target-date funds work in 401(k) plans.

The fund manager decides on a “glide path,” Robbins described. He said that referred to a schedule for decreasing stock holdings (more risky) and increasing bond holdings (traditionally less risky) in an effort to be more conservative as one gets nearer to retirement.

“Never mind that each manager can pick his own ‘glide path,’ and there is no uniform standard,” Robbins wrote. “Sounds more like a ‘slippery slope’ to me.”

Related: Tony Robbins warns U.S. workers on Social Security, retirement certainty

Tony Robbins discusses a 401(k) alternative for investments

Robbins mentions a strategy known as Pure Alpha, developed by Bridgewater Associates founder Ray Dalio and launched in 1991.

“The strategy now has $80 billion and has produced a mind-boggling 21% annualized return (before fees were taken out) and with relatively low risk,” Robbins wrote.

The Pure Alpha strategy is a flagship investment approach for Bridgewater. It’s goal is to increase the value of its investments that grow regardless of contemporary trends in markets.

The strategy involves extensive research, advanced models and precise execution to maximize returns that outsize market expectations.

“The investors in the Pure Alpha strategy want big rewards and are willing to take risks — albeit still limiting their risk as much as humanly possible,” Robbins wrote.

Dalio understood that conventional wisdom and portfolio management involves models that can’t succeed in tough economic times, Robbins wrote.

“So he began to explore whether or not he could put together a portfolio — an asset allocation — that would do well in any economic environment in the future,” Robbins explained.

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