As they work to maintain financial stability for themselves and their families, many Americans regularly reflect on their long-term financial aspirations — such as preparing for retirement, maximizing Social Security benefits, building savings, and making informed investment decisions.
Tony Robbins, a well-known motivational speaker and author on personal finance, shares his perspective on a couple key points about 401(k) plans that retirement savers should keep in mind.
And one of them is a serious warning.
To begin with, Robbins emphasizes the value of employer-sponsored 401(k) plans, viewing them as powerful tools for building retirement wealth.
“To the extent that your employer matches your contributions, you should certainly take advantage of your 401(k), as the company is essentially covering the taxes for you,” he wrote in this book, “Money: Master the Game.”
Because Social Security alone typically doesn’t provide enough income to cover all living expenses in retirement, Robbins stresses the importance of contributing to a 401(k) — ideally in combination with a tax-advantaged Individual Retirement Account (IRA).
Robbins recommends Roth 401(k)s and Roth IRAs
He particularly recommends opting for a Roth 401(k) if it’s available through one’s employer.
Robbins believes that tax rates are likely to rise in the future, which makes the tax-free withdrawals from Roth 401(k)s especially attractive. These accounts are funded with after-tax dollars, meaning taxes are paid upfront.
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He applies the same logic to Roth IRAs, highlighting their advantages over traditional IRAs. With Roth IRAs, taxes are paid when contributions are made, allowing retirees to withdraw funds later without facing additional tax burdens.
While many people refer to retirement savings as a “nest egg” or “safety net,” Robbins prefers the term “money machine.” He explains that with consistent contributions and careful management, this “machine” can grow into a powerful financial engine.
However, Robbins also cautions Americans to be aware of certain pitfalls when setting up their 401(k) plans and encourages thoughtful planning to avoid costly mistakes.
Tony Robbins warns Americans on one 401(k) investment
Robbins expresses skepticism about the role of target-date funds in 401(k) plans, suggesting they might be among the most heavily promoted — and potentially overpriced — investment options available to retirement savers.
Target-date funds (TDFs) are retirement investments that automatically adjust asset allocation over time, becoming more conservative as the target retirement year approaches.
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“What are you really buying with a TDF?” Robbins asked. “You are simply buying into a fund that handles your asset allocation for you. It’s as simple as that. Instead of picking from the list of fund options, you buy one fund, and voilà. It’s ‘all handled for you.'”
Although these funds have gained popularity and now represent a rapidly expanding segment of the mutual fund market, Robbins questions whether they truly serve the needs of investors as intended.
He outlines how target-date funds operate: Fund managers establish a timeline, known as a “glide path,” that gradually shifts the portfolio from higher-risk assets such as stocks to more conservative holdings such as bonds as the investor approaches retirement age.
Robbins recalls when target-date funds in 401(k)s were a disaster
Robbins points out a major concern with this approach — each fund manager has the freedom to design their own glide path, with no standardized method across the industry. In his view, this lack of consistency could lead to unpredictable outcomes for investors, making the strategy less reliable than it appears.
In addition to this potential lack of investment stability — and being no fan of bonds in the first place — Robbins worries about how risky it is to pick a random retirement year in the future and decide that is the year to be heavily invested in bonds, with no real control over making personal investment decisions regarding one’s 401(k).
“Imagine that it is early 2008, and you are closing in on your retirement,” Robbins wrote. “By all accounts your 401(k) balance is looking healthy. Your ‘2010 target-date funds’ are performing nicely, and you trust that since you are only two years away from retirement, your funds are invested very conservatively.”
“Millions of Americans felt this way before 2008 (the Great Recession) wiped out their hopes for retirement, or at least the quality of retirement they had expected.”
Tony Robbins’ key advice on 401(k) plans
- If your employer offers a matching 401(k) plan, use it. The company’s match is free money.
- If a Roth 401(k) plan is offered, be sure to select that one. Taxes are paid upfront and withdrawals in retirement are tax free.
- Invest in a Roth IRA. The tax advantage for these is the same as for Roth 401(k) plans; taxes are paid now and withdrawals are tax free later.
- Beware of target-date funds in 401(k) plans. It is risky to pick a random retirement year in the future, with little control over individual investment decisions.
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