E-Paper
Why Trump wants Australia's retirement system: Could it replace Social Security and 401(k)s?
Trump is studying Australia's retirement system as Social Security faces a 2032 funding crisis. Here's what it could mean for 401(k)s and US retirees.
US President Donald Trump said his administration is looking "very seriously" at Australia's retirement system to see if parts of it can be used in the United States. Trump said at the 6th July White House event, Australia's retirement system has worked "very well" and is highly respected.
He said his administration will discuss it with Congress to see if it can be implemented in the US. The discussion comes as the US retirement system faces major problems, especially with Social Security running short of money.
Why is the US retirement system under pressure?
Social Security, the government's retirement program, could become financially insolvent by 2032 if no action is taken. Only about half of private-sector workers in the US take part in workplace retirement plans like 401(k)s.
Experts say this means millions of Americans are not saving enough money for retirement, according to USA Today. Social Security currently pays out more money than it collects, reducing its cash reserves every year. Once those reserves are exhausted, Social Security will only be able to pay about 83% of scheduled benefits unless Congress makes changes, as per AARP estimate.
How does Australia's retirement system work?
In Australia, employers are legally required to put 12% of every worker's wages into a retirement savings account similar to a US 401(k). Every worker is covered under this mandatory retirement savings system. Australia also provides an Age Pension for retirees who do not have enough savings or assets to support themselves, according to USA Today. The pension mainly helps prevent older people from falling into poverty.
Why do some experts like Australia's model?
Andrew Biggs of the American Enterprise Institute said if someone were creating a retirement system from scratch today, they would likely build one similar to Australia's. Biggs said Australia's system protects retirees while making sure workers save throughout their careers, according to USA Today. Andrew Eschtruth of Boston College said Australia spends a smaller share of its economy on retirement benefits than the US while still providing strong protection for retirees.
Why is Trump studying Australia's system?
Trump has not explained exactly how he wants to copy Australia's retirement system. However, one clue comes from an executive order he signed earlier this year. The order aims to make retirement savings available to workers whose employers do not offer 401(k)-style plans, as cited by USA Today. The executive order creates a new website called TrumpIRA.gov where workers can sign up for private retirement plans.The website is expected to launch by January 1, 2027.
Other retirement savings efforts
Trump's plan comes as the Saver's Match program, approved under President Joe Biden in 2022, is also set to begin. Saver's Match will provide eligible low-income workers with up to $1,000 a year in matching retirement contributions. Several US states are also expanding automatic retirement savings programs for workers. Starting in 2025, most newly created 401(k) plans must automatically enroll employees unless they choose to opt out.
Will every American be required to save?
Australia's system requires retirement savings, but the US does not. Experts disagree on whether America should introduce mandatory retirement savings. Romina Boccia of the Cato Institute said employer retirement contributions ultimately come from workers' wages, according to USA Today. She argued that forcing workers to save could reduce take-home pay, especially for low-income families. Boccia said many people who do not contribute to a 401(k) probably need every dollar of their paycheck for daily expenses.
Labor economist Teresa Ghilarducci said every worker should contribute to retirement savings, just as workers contribute to Social Security. She said retirement contributions should be seen as saving for the future rather than as a tax.
Ideas for changing Social Security
Andrew Biggs suggested reducing future Social Security benefits for higher-income Americans while focusing more support on lower earners. He also proposed requiring every worker to enroll in a 401(k)-style retirement plan. Biggs said if everyone saved for retirement, Social Security would have a much easier job supporting retirees. A Washington-based think tank has proposed limiting annual Social Security benefits for couples to $100,000 to help strengthen the retirement trust fund, as cited by USA Today.
Can Australia replace Social Security?
Retirement experts said replacing Social Security with Australia's pension system would be extremely difficult. Australia's Age Pension pays a maximum of about $28,000 a year to an individual in 2025. In comparison, US Social Security can pay up to $62,172 a year in 2026.
Why replacing Social Security would be hard
Gopi Shah Goda of the Brookings Institution said millions of Americans already expect to receive Social Security benefits because they have been paying into the system for years, according to a USA Today report. She said replacing Social Security with a smaller Australian-style pension would leave many workers feeling they had been treated unfairly.
Goda said the US has already promised retirement benefits to current and former workers, and those promises must still be honored. She stressed that any changes to the retirement system would depend on the details of how they are introduced.
