A targeted change to how Social Security’s annual cost-of-living adjustments (COLA) are calculated could dramatically improve the program’s long-term finances while protecting the most vulnerable beneficiaries, according to a new analysis.
The nonpartisan Committee for a Responsible Federal Budget (CRFB) examined a “flat-rate COLA” proposal that would provide the same dollar increase to all recipients, based on the adjustment received by a beneficiary at the 20th or 30th percentile of the benefit distribution. The results are striking: implementing a flat-rate COLA at the 20th percentile would close roughly 50% of Social Security’s 75-year actuarial shortfall. A version set at the 30th percentile would close about 40%.
This approach is relatively progressive. It slows benefit growth most for higher earners while actually boosting benefits slightly for the lowest-income quintile. Under the 20th percentile plan, the bottom fifth of lifetime earners would see only a 3% reduction in benefits by 2065, compared to a 19% cut for the top fifth. The plan would also increase benefits for the lowest earners by 13-14% over time.
Social Security’s main trust funds are currently projected to reach insolvency in 2032, triggering automatic benefit cuts of approximately 22% across the board. For a typical medium-income dual-earning couple, that could mean losing around $16,900 per year starting in 2033.
The flat-rate COLA idea is not new. Former Rep. Tim Penny (D-MN) proposed a similar concept back in 1987. CRFB’s analysis shows that if Congress had adopted it then, Social Security would have achieved 75-year solvency and pushed insolvency out to 2071 — giving lawmakers decades to make additional gradual fixes.
CRFB President Maya MacGuineas emphasized the high cost of continued delay: “Adopting a flat-rate COLA back when Congressman Penny proposed the idea would have achieved solvency through 2071… now, that same plan would only delay insolvency another two years.”
The proposal stands out because it avoids deep across-the-board cuts or major tax increases that often dominate the debate. Instead, it modestly restrains the fastest-growing benefits for higher earners while shielding lower-income retirees who rely more heavily on Social Security.
With the program facing a massive long-term shortfall driven by demographics — longer lifespans and fewer workers per retiree — reforms like this could buy critical time. Combined with other sensible changes, such as CRFB’s employer compensation tax idea, it could move the program much closer to full 75-year solvency.
Lawmakers on both sides have long promised to protect Social Security. This type of targeted, progressive adjustment offers a practical path forward that prioritizes fiscal responsibility without punishing those who depend on the program most. The question now is whether Congress has the courage to act before the trust funds run dry.
