What Trump accounts and Australia’s Super may mean for Social Security

New Trump accounts We are preparing to give money to millions of children mid 2026. their creation It has led experts to speculate whether a similar strategy could be applied to retirement, another area where Americans may face financial shortfalls.

The tax-advantaged Trump accounts, which include an initial government deposit of $1,000 for some, were created when President Donald Trump signed the “big beautiful bill” into law in July. The goal is to help reduce wealth inequality by giving children a jump-start on accumulating assets, lawmakers said.

Parents and others can make after-tax contributions of up to $5,000 a year to a Trump account. Children born between 2025-2028 will be able to benefit from the state’s seed investments. Business philanthropists, including Michael and Susan Dell and Ray and Barbara Dalio, agreed to provide $250 per child to those who qualify under the terms of their donations.

on December 2 press conference Announcing Dells’ contribution, Trump was asked whether the administration planned to consider other policy proposals to help families. In response, Trump cited Australia’s superannuation plan for workers as potential inspiration.

Trump did not provide further details. The White House did not respond to a request for comment.

Experts are divided on how the United States can take a cue from Australia’s pension program, which includes both an old-age pension and a mandatory retirement savings system called Super Pension.

Trump’s proposal comes as the United States faces its own retirement dilemma.

Only the top 30% of the Baby Boomer generation with the highest incomes are financially ready for retirement. latest research From Vanguard. Other low- and middle-income members of that generation may likely have to rely on Social Security, according to the firm.

But Social Security’s trust fund, which contributes to retirement benefits, is in danger of depleting in less than a decade. These benefits could disappear if Congress does not act by the fourth quarter of 2032. 24% cutbased on projections From the chief actuary of the Social Security Administration.

According to Vanguard, workers with access to defined contribution plans such as 401(k)s are twice as likely to meet their financial goals for retirement. Vanguard’s research finds that 4 in 10 Americans can maintain their lifestyle in retirement. According to the firm, if all Americans had defined contribution plans, this rate would increase to 6 in 10 Americans.

Currently, 72% of U.S. private sector workers have access to retirement benefits, according to the Bureau of Labor Statistics. March data. The survey represented a total of 126.9 million private sector workers, according to the BLS.

An estimated 17 million people in Australia have Super accounts, covering most workers. Australian employers are required to contribute 12% of a worker’s earnings and individuals can choose to make additional contributions. Country’s Pension system Compulsory payments started At 3% of earnings in 1992.

As of September, Australia’s superannuation system was approx. $4.5 trillion Assets in Australian dollars. Currently the fourth-largest superannuation system in the world, it is expected to surpass the United Kingdom and Britain into second place by 2031, according to the Super Affiliates Council, an advocacy organization that provides savings into superannuation funds for Australians.

According to Andrew Biggs, a senior fellow at the American Enterprise Institute, a conservative public policy think tank, Australia’s retirement system consists of two parts: Universal retirement savings plans, which represent the mandatory savings component of the retirement system, and age pensions, a means-tested benefit that is very similar to Supplemental Security Income, or SSI, benefits in the U.S. To qualify for U.S. SSI benefits, individuals must have little or no income and resources and be 65 or older or disabled or blind.

Biggs said Australians were becoming less and less confident in means-tested retirement as the superannuation system grew and retirement accounts matured.

The same dynamic could help encourage retirement savings and ease the pressure on Social Security, Biggs said.

“If every worker was saving for retirement, wouldn’t that make SSI’s job easier?” Biggs said.

The question is how to achieve this goal.

In 2021, Teresa Ghilarducci, a professor at The New School for Social Research, co-authored a paper. research paper Fellow economist Kevin Hassett, who now serves as director of the National Economic Council, called for a new plan modeled on the Thrift Savings Program.

Ghilarducci and Hassett wrote that the TSP, a defined contribution program for federal employees and members of the armed forces, manages to offer low expense ratios or annual fees due to bargaining power that leads to higher projected returns compared to IRAs or 401(k)s.

Meanwhile, matching and automatic enrollment increased TSP plan participation.

According to Ghilarducci and Hassett, if a similar plan were offered to everyone (with government matches and potential private employer matches), millions of Americans, including low- and middle-income households, would see a “significant influx of wealth.”

Economists estimate in 2021 studies that among average households in the poorest 25 percent of the wealth distribution, 40 years of TSP participation could yield a retirement account balance of $138,000 to $610,000, before fees and taxes. Possible balances vary based on government matches and likely rates of return.

“Our idea was for a wealth account that would follow workers throughout their entire careers and eventually be converted into a lifetime income,” Ghilarducci said in an interview.

“Every American should have a supplemental private account to supplement their Social Security,” he said.

There is a bipartisan bill in Congress today that aims to achieve this goal.

Retirement Savings for Americans Act Portable, tax-advantaged retirement savings accounts will be created for full- and part-time employees who do not have access to employer-sponsored retirement plans. Eligible workers will automatically be enrolled to contribute 3% of their income, a choice they can change. Low- and middle-income workers will receive up to 4 percent support through a 1 percent government contribution and a refundable federal tax credit.

Another Democratic bill reintroduced on Monday. Automatic IRA ActThis regulation would require employers with more than 10 employees who do not provide retirement plans to enroll workers in automatic IRAs, which allow employees and employers to contribute through payroll deductions or other retirement plans. The cost to small employers would be offset by a new auto IRA tax credit for those businesses.

This proposal is inspired by government auto IRAs, which have saved 1 million workers $2 billion since the first such program launched less than a decade ago. research From Pew Charitable Trusts.

A plan called MyRA, launched under President Barack Obama, tried and failed to create a federal effort to boost retirement savings. One reason it didn’t work was because it didn’t automatically enroll workers. Urban InstituteA think tank based in Washington DC. As a result, the low enrollment rate led the Treasury Department to decide that the costs of running the program were too high.

Secretary of the Treasury at an event in February Scott Bessent said Australia’s sovereign wealth fund has “orderliness, sustainability and direction” that are “preferable”. But creating such a fund in the U.S. would be difficult, according to Boccia, because it would likely be financed by debt rather than assets.

Americans have other options for saving right now through private IRAs, Boccia said. He said state auto IRAs could help more people set up accounts, including those who can’t meet brokerage minimums.

Instead of focusing on new ways to encourage individual savings, he said the focus should be on Social Security reform.

“The retirement crisis we are experiencing is caused by the government promising social benefits that it cannot pay,” Boccia said.

Ghilarducci, who hopes to see the idea of ​​Social Security supplemental accounts come to fruition, also said the program should be an urgent priority: “The end of Social Security is the story of the next six years.”