By Charles Passy
America’s retirement system desperately needs reform
President Trump suggested the U.S. should consider the Australian retirement-savings model.
Could America’s signature retirement-savings program look a lot like Australia’s one day?
That’s the idea President Trump hinted at earlier this week, saying the Australian model is a “good plan” that has “worked out very well.”
“We’re looking at it very seriously,” Trump said.
In a nutshell, the Australian plan takes some of what’s already baked into the American 401(k) retirement-savings model, but expands upon it in significant ways that assure more people have more savings by the time they reach retirement age. Called the “superannuation” (or “super”) model, the program requires employers to make a 12% contribution to a retirement fund on behalf of the employee. The employee can also contribute an amount beyond that.
‘We’re looking at it very seriously.’President Donald Trump, on the U.S. possibly adopting the Australian retirement-savings model
In the U.S., the 401(k) model works by giving employees the chance to participate in a retirement-savings program through their employer, with tax benefits to employees for doing so. But the employer is not obligated to offer a 401(k) plan – and even if they do, there’s no requirement they make any kind of contribution to it.
Indeed, research has shown that 56 million private-sector workers in the U.S. lack access to a retirement-savings plan. And even among employees who have a 401(k), the employer contribution is typically in the form of a match, which often equates to 4% to 6% of an employee’s salary – far below that 12% Australian figure.
Australia’s program, with the mandatory employer-contribution aspect, has been in place since 1992, but it didn’t start at 12%. In fact, it began with just 3%, but over time the figure grew incrementally to the current 12%. Still, it has resulted in Australian workers, on average, accumulating the equivalent of around $115,000 (that’s roughly $173,000 in Australian currency (AUDUSD)).
Those enrolled in U.S. 401(k) plans actually have a bit more than that; the average 401(k) balance is $148,153, though it should be noted that wages and the cost of living are lower in Australia.
Perhaps the more relevant data point, however, is the fact that 78% of Australians participate in the “super” program. By contrast, just 59% of Americans have a retirement-savings plan, be it a 401(k), 403(b) or an individual retirement account (IRA), according to a Gallup survey.
But some financial experts say it might be politically tough to push through an Australian-style program in the U.S., especially given the financial burden it places on companies – and small ones in particular.
A plan that mandates that businesses contribute to employee retirement plans at such a high level “will never happen,” said Teresa Ghilarducci, a noted retirement authority who’s an economics professor at the New School in New York City.
Plus, even those who give the Australian system high marks point to issues within it. A key one: Even though the system helps ensure that workers save a significant sum for retirement, it doesn’t necessarily guide them on how to tap that money once they retire – by turning it into, say, a monthly income stream they can parse out carefully over time as they deal with any number of medical or other issues they may face as they age.
“The system still struggles to help retirees navigate longevity risk, inflation and cognitive decline,” said Tomas A. Geoghegan, founder of Beacon Hill Private Wealth in New Jersey.
That said, the American 401(k) model doesn’t offer any systemized way of parsing out, or annuitizing, one’s retirement savings, either.
In any case, there’s little question that the current retirement-savings system in the U.S. needs to be revamped. Without an improved safety net, Americans will be relying more heavily on Social Security than ever, experts note. And as Americans are constantly reminded, Social Security is under threat as it is.
“We absolutely have to do something,” said Holly Verdeyen, a partner at Mercer, a consulting firm that focuses heavily on retirement planning.
Mercer rates retirement systems throughout the world, and gives the Australian model a solid B+. By contrast, the U.S. gets a C+.
The U.S. has already been looking at ways to revamp its retirement-savings model, regardless of whether or not it considers the Australian one.
For starters, under what’s commonly referred to as the Secure 2.0 Act, Congress authorized such changes as letting employers automatically enroll employees into 401(k) plans and allowing employees between the ages of 60 and 63 to increase their maximum retirement contributions.
On top of that, a number of states are looking at ways for employees to access retirement-savings programs.
But more sweeping national reform is still needed, many argue. And some say it could come in the form of the Retirement Savings for Americans Act (RSAA), which is currently making its way through Congress. It calls for a program that would broaden accessibility to tax-advantaged retirement-savings accounts and would have the federal government match contributions for workers below certain income levels.
In the meantime, the Australian model is still out there.
White House spokesman Kush Desai wouldn’t get into specifics about how the model could work in the U.S., but told MarketWatch: “The administration is closely examining all options to help Americans build wealth and achieve prosperity.”
-Charles Passy
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12-06-25 0800ET
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