The Aussie Retirement Trick Trump Wants to Steal

Donald Trump wants to take America down under.

On the surface, it’s not a bad idea. Beneath the hood, however, it’s just failure by another name.

Here’s what’s going on: Earlier this week, Trump offered up an idea to introduce an Aussie-style retirement plan to America—“only better,” in Trump’s telling. The land down under operates what’s known as a “superannuation” system—a retirement-savings scheme in which all employers are required by law to contribute 12% of every worker’s pay into investment accounts so that everyone has a nest egg to draw upon in those fabled golden years.

Alas, all is not as golden as it might seem with Trump’s idea… or with the Aussie plan.

All of this matters because it exposes a deeper truth hiding beneath the reason Trump’s idea even exists: The American retirement system as structured since the 1980s is opt-in, and most Americans opt-out… which is why one in five near-retirees today has saved nothing, according to AARP surveys, and why roughly 20% of American retirees live in relative poverty, per an international yardstick traded by the Organization for Economic Co-operation and Development.

America’s elderly poor fall further beneath the poverty line than most of the developed world. The culprit is a retirement system that demands lifelong financial discipline from people who were never trained in money management and who struggle in an economy where governmental policies mean so many live paycheck-to-paycheck.

So the Aussie system, on the surface, would seem like a move in the right direction.

However, in Trump’s recasting, the plan he wants to build (built oddly, but so on brand, around an eponymously named TrumpIRA) remains opt-in. No different than opting into a company’s 401(k) plan or actively deciding to open an IRA with after-tax money.

So, America’s retirement wreckage is specifically the result of forcing workers to take personal responsibility for a facet of life most are ill-equipped to manage.

A retirement system has two jobs, or at least should:

1.  Keep old people out of poverty.

You accomplish that by building a floor, a foundation—a universal state pension everyone receives, lightly means-tested or not at all. That’s America’s Social Security System today. Except the floor it built is rotten, given that stat I mentioned about one in five poverty-ridden retirees.

• Allow people to retire in comfort rather than mere survival.

You accomplish that through forced savings layered on top of the universal floor. That means contributions pulled from every paycheck, mandatory, untouchable until you’re old.

Number 2 is where America’s retirement system collapses, and it’s where Trump’s version of an Aussie-style IRA accomplishes nothing. Opt-in systems perform neither job. They don’t provide a floor and they rely on workers actively choosing to fund the account, which is where the system breaks down. Stretched workers deciding between utility bills, a car payment, or rent aren’t going to say, “you know what? I really need to think about future me 40 years from today.”

Trump pegging his plan to Australia sounds shrewd—the Australian superannuation system is genuinely admired. But the outcome is not as picturesque as the brochure.

Australia still leaves one in five of its retirees in poverty. That’s because Australia built #2—the forced savings—but skimped on #1: the floor. Which makes superannuation a strange plan to copy.

If Trump or America in general actually wants to build a plan that will work, then Congress has to look to countries that Americans love to mock as soft, over-taxed nanny states: Denmark, the Netherlands, Norway.

There, the share of retirees in poverty is 5% or less—far superior to the American experience.

Those countries bothered to do both jobs necessary for a successful retirement system. They created a real, universal floor, and they stacked mandatory savings on top of that.

That word “mandatory” is the monkey wrench in the bigger discussions about retirement security in America, because it raises a question no American politician wants to touch: What’s better for a country—the freedom to grow old into poverty because “the hell if anyone is gonna tell me what to do with my money!” or the government mandating retirement savings as a way to assure a higher standard of living in retirement?

Freedom is a complicated word in America. It’s the rope you use to pull yourself up… or the rope that snags around your ankles and drags you down to the depths…

Ultimately, retirement comes down to this: You pay on the front end through forced savings, or you pay on the back end through earned poverty.

Trump is on the right track. He’s just riding the wrong horse… backwards.