Protecting "half the planet" also comes with lots of advantages. I can't put a dollar amount on it, but it is definitely not going to be trivial. As mentioned in another thread, at the very least you have created a nice market for all your shiny military kit (which, by the way, is at risk of collapsing, as Europe is quickly rediscovering that it can be actually quite good at making weapons).
And aside from that, the choice between welfare and a strong military is a false dichotomy. During the cold war, western europe had extensive social programs (moreso than today, I'd say) _and_ a military capable of making the Soviet Union think twice. So, i think, you can have both, even with modern day demographics, as long as you are not, say, overextending yourself with endless wars in the middle east.
I'd agree with you on that, if we had a functional layer to deal with global affairs. Institutions like the United Nations, WHO and WTO are a start, but they are far from perfect. So, sure, you could retreat to your corner of the world, but border-crossing issues are not going to magically disappear, when you stop looking at them. Pandemics, disruptive technologies, climate change, international terrorism, wars, all these things are going to need some global leadership and, if ignored, will eventually come crashing through your front door. I, for one, would like to have western style democracies lead the way in dealing with them, rather than autocratic regimes like China and Russia. If the United States is walking away, i suppose, it is going to be left to the EU and friends. Now, our track record isn't great, but hey, perhaps this time we'll get it right (somebody just needs to make sure that Germany doesn't get overexcited again 😉 ).