No more full Social Security COLA for all? New proposal can help preserve program, but would hurt millions of US seniors

Social Security is a popular but expensive program. With the trust fund facing depletion in just a few years, experts have suggested different ways to cut costs and make the program more sustainable, including raising the full-retirement age or eliminating the payroll tax cap for high-income earners.

Now, the Committee for a Responsible Federal Budget (CRFB), a bipartisan nonprofit, is adding another innovative solution to the mix: limiting cost-of-living adjustments (COLA) for the highest-income earners (1).

In a white paper published in October that cites calculations by the Urban Institute, the organization says the proposed change “could be a rapid, thoughtful, and progressive way to help restore solvency and put Social Security on a sustainable path.”

But, if implemented, this shift could make it difficult for some beneficiaries to sustain their purchasing power later in retirement.

Here’s a closer look at why this change is being proposed and how it could impact your retirement plans.

COLA is a mechanism built into the Social Security system that helps protect beneficiaries from the impact of inflation.

Initially, these adjustments were done on an ad-hoc basis and needed congressional approval. But when inflation flared up in the 1970s, Congress enacted a provision to allow for automatic annual COLAs. Since then, the annual COLA is linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), an official measure of the monthly price change in a basket of goods and services, such as food, energy and medical care.

For 2026, the Social Security Administration pegged COLA at 2.8%. This adjustment will benefit all 75 million beneficiaries of the program.

Under the CRFB’s new proposal, all beneficiaries will still benefit from an annual COLA. However, retirees with the largest benefits — and typically the highest lifetime earnings — will face a fixed dollar amount cap on their annual COLA.

So if COLA is 2% in a given year, someone who receives $50,000 in total annual benefits would typically see a $1,000 bump, but would now face a potential cap at $900 instead. Beneficiaries earning less than $45,000 would still see the full adjustment.

Story Continues

This cap can be calculated in a variety of ways, and for its white paper, the CRFB suggested setting the cap at the COLA received by the 75th percentile beneficiary based on their primary insurance amount (PIA) — the benefit a retiree would receive if they claimed at their full retirement age (FRA).

Read More: Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself

“As with the benefit itself, the cap would be adjusted upward or downward based on collection age,” explained the paper. “For example, the cap would be reduced by 30% for those who began collecting at age 62 and increased by 24% for those who began collecting at age 70. Similarly, the cap would be adjusted for benefit type. For example, it would be half as high for a spousal benefit.”

In 2055, benefits would be 6% lower for the top quintile, including 7% lower for the top 5% of earners.

The CRFB’s proposal may seem radical, but it reflects the real risk of cuts that all beneficiaries currently face.

With recent tax cuts and deductions from the One Big Beautiful Bill Act (OBBBA) taken into account, Social Security’s retirement and disability trust funds combined are expected to be depleted by early 2034. At that time, there would be sufficient income coming in to pay just 81% of scheduled benefits. Considered alone, the retired worker’s trust fund depletion date is late 2032, at which time 77% of benefits will be payable.

By focusing on high-income earners, the CRFB argues it is limiting the cuts to only those who can most afford it, while preserving the system for middle- and low-income retirees who need the COLA more.

According to its estimates, placing a hard cap for the top 25% of Social Security beneficiaries could save $115 billion over 10 years, nearly 10% of the program’s funding shortfall over 75 years. Alternatively, if the cap applies at the 50th percentile, half of all beneficiaries would face a limit on their COLA adjustment and the system would save $385 billion over a decade.

The think tank acknowledges that a COLA cap would do little to delay insolvency on its own and other reforms will be needed. However, since it would improve solvency, it would shrink the coming cut and actually increase payable benefits by about 2% for those in the bottom three quintiles.

It doesn’t seem like lawmakers have commented on the CRFB’s proposal, suggesting it hasn’t drawn much attention in Washington. Nevertheless, the trust fund’s depletion is looming just seven years away, and the Social Security program enjoys broad public support (93% of U.S. adults consider it a valuable federal program), which means Congress will likely need to act soon (2).

Taxpayers can expect some mix of adjustments or reforms, whether through higher revenues, slower benefit growth, or structural tweaks, as politicians aim to avoid an abrupt reduction in payments.

Whether you’re already retired or just getting started with your career, these reforms will likely impact you. Of course, it’s also possible Congress will do nothing to save the federal program. Keep a close eye on the government’s next move as you plan for your golden years.

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Committee for a Responsible Federal Budget (1); Bipartisan Policy Center (2)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

No more full Social Security COLA for all? New proposal can help preserve program, but would hurt millions of US seniors

Tags: