The retirement overhaul Trump is considering - and what it could cost Social Security

President Trump has pointed to Australia as a retirement model the United States should study, bringing a very different system into the Social Security conversation.

Unlike the United States, Australia requires employers to contribute to private retirement accounts for eligible workers, while its public pension is mainly reserved for retirees with the greatest financial need.

Social Security already supports millions of Americans, so adopting a system like Australia's would raise immediate questions about how current senior benefits would fit alongside it. Here's what to know.

Trump's comments put Australia's system in the spotlight

President Trump first brought up Australia's retirement system while discussing Trump Accounts, a plan that would give American children government-funded investment accounts at birth. He pointed to Australia as a country where a similar philosophy has been put into practice at a national scale, and said the system has "really worked out very well."

He has since connected the Australian model more directly to retirement policy, suggesting the United States should take a closer look. Trump has not proposed any specific changes to Social Security, and no legislation has been introduced.

How Australia's system works

Australia spreads retirement income across three different sources instead of relying mainly on one government program.

• Age Pension: A government pension funded through general tax revenue. The amount depends on your income and assets, so retirees with more savings receive a smaller payment or none at all.
• Superannuation: Employers must contribute 12% of a worker's earnings into a private retirement account that belongs to the employee. The money is invested over time and can usually be accessed from around age 60.
• Personal savings: Many Australians also add their own retirement savings on top of employer contributions, with tax incentives to encourage them to save more.

Together, those three sources provide retirement income for most Australians. Private retirement accounts do much of the heavy lifting, while the government pension acts as a safety net for people whose savings are not enough.

Bringing Australia's system to the U.S. would be much harder

Australia introduced its retirement system in the early 1990s, with employers making mandatory contributions into new private retirement accounts. Those contributions were new money, so they did not replace an existing program like Social Security.

The U.S. already has a Social Security system funded by a 12.4% payroll tax that pays benefits to current retirees. Any move toward private retirement accounts would have to fit around that existing system.

Two ways the U.S. could adopt a system like this

One option, called a carve-out, would send part of the money that now goes to Social Security into private retirement accounts. In return, workers would receive a smaller Social Security benefit because part of their payroll taxes had gone into those accounts instead.

The other option, called an add-on, would leave Social Security's funding and benefits unchanged. New retirement accounts would be funded with extra contributions or another source of money.

What each approach could cost

The 2026 Social Security Trustees Report projects about $11 trillion in taxable payroll this year.

Based on that estimate, redirecting 1 percentage point of payroll taxes into private retirement accounts would move roughly $110 billion away from Social Security. Redirecting 2 percentage points would increase that to about $221 billion before accounting for any other policy changes.

An add-on approach would avoid reducing Social Security's funding, but the money for those new accounts would still have to come from somewhere. It could come from employers, workers, general tax revenue, or a combination of all three.

The Congressional Budget Office has also noted that paying current retirees while shifting workers into private accounts would remain one of the biggest challenges, and those costs could last for decades.

What this would mean for your benefits

Anyone already receiving Social Security, or close to claiming it, would be unlikely to see any immediate changes. A proposal this large would take years to put in place, and every version studied so far, including the Trump Accounts concept, has protected current and near-retirees.

Future retirees could have a very different experience, though. Adding private retirement accounts on top of Social Security would give workers another source of retirement income while leaving their Social Security benefits in place.

If part of the payroll tax were redirected into private accounts instead, workers would likely receive a smaller Social Security benefit in exchange for a larger investment account whose value would rise and fall with the market.

Bottom line

Australia's retirement system may have caught President Trump's attention, but bringing anything similar to the United States would be a long process with difficult tradeoffs to resolve first. Any proposal would have to fit around a Social Security program that already supports millions of Americans.

Whether that discussion leads anywhere will depend on decisions that are still years away, but it has already expanded the debate over what an American retirement plan could look like in the future.