President Trump Is Eyeing Australia-Inspired Retirement Accounts. Here’s What That Would Mean for You.

Retirement was once supposed to be a time of relaxation and reward after a long career, but it’s increasingly become a time of stress and poverty as seniors manage rising costs on dwindling incomes. There are several reasons for this, including expenses growing faster than wages and Social Security’s buying power slowly eroding over time. Many workers also don’t have access to a retirement plan through their jobs.

The Trump administration has been exploring ways to help Americans retire more comfortably, and one idea the president floated last month was offering new retirement accounts modeled after Australia’s retirement system. Here’s what that could look like — the good and the bad.

Image source: The White House.

How an Australia-inspired retirement account could help savers

Australia’s retirement system includes a “Superannuation Guarantee” program. Basically, employers are required to withhold 12% of workers’ pay and place it in tax-advantaged retirement accounts where it’s invested until the person reaches age 65, or as young as 60 if they have stopped working by then. It’s essentially a forced savings program. Workers don’t have to think about saving money for their future because their employers do it for them.

A program like this could substantially increase the retirement savings available to a worker by the time they reach 65, compared to the current system, in which Americans save voluntarily and sometimes not at all if they can’t afford it. But whether it’s enough to retire comfortably on depends on factors like the person’s salary, the return on their investments, and what kind of lifestyle they envision in retirement.

There’s also a hidden drawback to this type of approach that could prove devastating to workers. If the government adopted Australia’s system and required all employers to put 12% of employees’ pay into retirement accounts for them, most employers aren’t just going to give all of their employees a 12% raise and eat the losses themselves. That money will come out of employees’ paychecks, leaving them with less cash in the present to fund their current expenses.

That could be a problem if you’re already struggling to cover your bills on the income you have today. However, if such a system were to take effect, it might not happen all at once. The mandatory retirement contribution might start small and increase over several years, giving you time to get used to the new system.

It’s only an idea for now

While the Trump administration is looking into whether Australia-inspired retirement accounts could work for the U.S., there are no concrete plans to make this a reality yet. So there’s no reason to panic if you’re worried about how this move could affect your finances.

For now, focus on saving what you can, and remember to increase your retirement contributions whenever you get a raise.