A new proposal suggests limiting annual Social Security Cost-of-Living Adjustment (COLA) increases for the highest earners—a change that could help stabilize the program’s finances without taking away inflation protections from most beneficiaries.

Why It Matters

Social Security is facing growing financial pressure. The retirement trust fund is projected to run out within the next decade. If Congress does not take action to shore up the finances, retirees could see their benefits cut by around 24 percent in late 2032.

More than 50 million Americans receive Social Security in retirement, relying on their monthly checks as a steady source of income. Every January, those payments rise thanks to the annual COLA, which boosts benefits based on the CPI-W—an inflation measure that tracks the spending of urban workers. The goal is to make sure benefits keep up as prices inevitably increase, with next year’s rise set at 2.8 percent, beginning in 2026.

What To Know

A new white paper published by the Committee for a Responsible Federal Budget (CRFB) proposes placing a cap on the size of each year’s COLA for those claiming the largest Social Security benefits. Everyone would still receive a COLA, but retirees with very high benefits—typically those who had the highest lifetime earnings—would see their annual increase limited to a set dollar amount.

The report explains how this would work. If inflation in 2035 resulted in a 2 percent COLA and the cap were set at $900, someone receiving a $50,000 benefit per year would normally get a $1,000 increase. Under the cap, that person would instead receive $900. Retirees receiving $45,000 or less in benefits would see no change and would get the same COLA as they do under current law.

The CRFB says would “save money right away and help strengthen Social Security in the long run.”

It reports that setting the cap at the 75th percentile of benefits would save $115 billion over 10 years and cover about one-10th of the program’s long-term funding shortfall. Adjusting the cap to the 50th or 90th percentile could save anywhere from $35 billion to $385 billion over a decade, closing between one-20th and one-quarter of the 75-year solvency gap.

What People Are Saying

The CRFB said: “A COLA cap could meaningfully and quickly improve the solvency of Social Security’s trust funds while concentrating adjustments on those most able to bear them, maintaining full inflation protection for most beneficiaries, continuing to maintain inflation protection on an adequate level of benefits for all beneficiaries, and ensuring solvency solutions are spread over more generations,” the report concluded.

“It would do so without meaningfully weakening work incentives in the program or enacting nominal benefit cuts or freezes.”

What Happens Next

Some lawmakers in Congress have taken heed of the looming shortfall, but there are differing approaches that don’t necessarily mean capping COLA increases.

The Fair Share Act, introduced by Democrats Sheldon Whitehouse of Rhode Island and Brendan Boyle of Philadelphia earlier this year, seeks to strengthen Social Security and Medicare by placing a greater burden on top earners. Under the proposal, individuals making more than $400,000 a year would pay Social Security taxes on all wages, self-employment earnings, and investment income above that level.

A bipartisan proposal from Republican Senator Bill Cassidy of Louisiana and Democratic Virginia Senator Tim Kaine would establish a new investment fund separate from the current Social Security trust funds. While the program’s existing assets are limited to special U.S. government bonds, this new fund would broaden its portfolio to include stocks, traditional bonds, and other investments in an effort to generate higher returns.