BlackRock CEO Larry Fink says to look Down Under to reform Social Security
BlackRock CEO Larry Fink says to look Down Under to reform Social Security
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Elon Musk claims there are 150-year-olds on Social Security
Tesla and SpaceX CEO Elon Musk incorrectly claims there are 150-year-olds on Social Security.
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For anyone who depends on Social Security to pay bills (and millions of Americans do), a 21% cut in benefits may be devastating. Even if someone works for years to maximize their monthly benefit, a reduction is sure to impact their everyday budget. Yet, cuts are on the horizon if Congress can't agree on a plan to shore up the Old-Age, Survivors, and Disability Insurance (OASDI) program before the trust runs dry.
Take a page from Australia's
book
Larry Fink, CEO of global investment company BlackRock, believes Social Security could be reformed by switching to retirement savings similar to Australians' superannuation system (also called the "super").
In Australia, employers contribute a percentage of each employee's salary into a superannuation fund, a long-term investment (like Social Security) designed to save for retirement. Thanks to the superannuation guarantee, employers must contribute a minimum amount to their employees' accounts. That percentage currently sits at 11.5%. Employees can also contribute to their super up to a limit.
Superannuation funds offer various investment options, and employees can choose where their contributions go. While superannuation contributions and earnings are subject to tax, the rate is typically lower than other income tax rates.
Like Social Security, savings built up in a super fund are generally not tapped until an employee retires.
Fink's perspective
Fink claims that Social Security is an inferior retirement savings model compared to the superannuation program. Still, he believes Social Security has become so politicized that no one wants to discuss changes. He contends that politicians are too afraid to broach the subject.
Private companies invest in and manage millions of Australian superannuation accounts, while the U.S. Department of Treasury manages the Social Security trust fund. Given that BlackRock manages the world's largest portfolio of assets (worth a cool $11.5 trillion in 2024), Fink's admiration for the Australian system may be based on the belief that private investment firms are better positioned to manage and grow retirement savings.
Benefits of the Australian system
Australia's superannuation system provides some pretty sweet (and unusual) benefits, including:
Lower taxes: Contributions to super funds are taxed at 15%, well below the maximum of 47% on regular income.
Discounted insurance rates: Thanks to group discounts, some super funds offer cheaper insurance premiums.
Low-income workers get a boost: The Australian government adds extra funds to the accounts of low-income individuals, giving their super accounts a chance to earn more as they grow.
Free professional advice: Many funds offer free advice to contributors to help manage their retirement savings.
Discounts and rewards: Funds often provide investors with exclusive deals and discounts.
Tax-free in retirement:
Once a person reaches 60, they have tax-free access to their superannuation.
Social Security has been a lifeline to Americans since 1935, and a recent Navigator Research report found that 85% of Americans oppose cuts to the program they've spent years paying into. Whether changes designed to strengthen the program include elements of the Australian system or not, most people just want to know that Social Security will be there when they need it.
Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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