Flat-Rate COLA Could Close 50% of Social Security's 75-Year Gap

Q: How would a 'flat-rate' adjustment affect retirement checks for the highest versus the lowest earners?

A flat-rate COLA would shift more protection to lower earners and slow benefit growth for higher earners. Instead of giving every retiree the same percentage increase, the proposal would give everyone the same dollar increase, pegged to the COLA received by someone at a lower point in the benefit distribution, such as the 20th or 30th percentile. That means retirees with smaller checks would get a relatively larger boost, while those with larger checks would get a smaller increase than under current law. For the lowest earners, the effect is modestly positive or only slightly negative, depending on where the flat rate is set. Urban Institute estimates cited by the Committee for a Responsible Federal Budget show that if the flat-rate COLA were set at the 20th percentile, the bottom fifth of lifetime earners would see benefits about 3% lower by 2065 than under current law. If set at the 30th percentile, that same group would see benefits rise about 1%. The policy is also projected to raise payable benefits for the lowest-income retirees by roughly 13% to 14% and reduce old-age poverty. For the highest earners, the effect is clearly larger. The top fifth of retirees would see benefits about 19% lower by 2065 under a 20th-percentile flat-rate COLA, or about 17% lower under a 30th-percentile version. In practical terms, low earners would keep full inflation protection or gain from it, while high earners would face a de facto cap on annual increases.

3 articles · Updated · Committee for a Responsible Federal Budget · Jul 21

Karen Smith estimated that a flat-rate Social Security COLA pegged to the 20th-percentile beneficiary and enacted in 2027 would close 50% of the program’s 75-year shortfall; a 30th-percentile version would close 40%.
The approach would give every beneficiary the same dollar COLA, making it more progressive than current indexing: by 2065, benefits would fall 19% for the top fifth of retirees under the 20th-percentile option, while the bottom fifth would see just a 3% cut.
Low-income retirees could fare better than under scheduled benefits, with payable benefits for the bottom quintile rising 13% to 14% and old-age poverty in 2065 falling 5% under the 20th-percentile option or 10% under the 30th-percentile option.
On its own, the 20th-percentile flat-rate COLA would delay combined trust-fund insolvency by only 2 years, but paired with an employer compensation tax it could restore 75-year solvency under Urban Institute’s 2025 baseline.
The proposal comes as Social Security’s outlook worsens: the 2026 trustees projected a 4.42% taxable-payroll shortfall, and the report argues lawmakers still need broader reforms to avoid a 22% benefit cut.

Sources

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Committee for a Responsible Federal Budget2d ago

Karen Smith Estimates Flat-Rate COLA Could Halve Social Security's 75-Year Shortfall

TheStreet2d ago

A 1987 idea could have saved Social Security - TheStreet

AOL2d ago

A 1987 idea could have saved Social Security - AOL

How would a 'flat-rate' adjustment affect retirement checks for the highest versus the lowest earners?

A 1987 proposal could have fixed Social Security. What does this 40-year delay mean for today’s retirees?

If this COLA plan isn't a complete fix, what other major changes could secure Social Security's future?

Flat-Rate COLA Reform: Addressing Social Security Solvency, Equity, and Poverty Reduction Before 2032

Overview

Social Security faces urgent financial challenges, with the trust fund projected to run out by 2032. Policymakers are exploring reforms like the Flat-Rate COLA, which would give all beneficiaries the same dollar increase each year. This approach could help lower-income retirees by boosting their benefits more, percentage-wise, than higher earners, and may reduce poverty. However, a Flat-Rate COLA alone cannot solve the program’s funding gap. Comprehensive reform—including changes to taxes, benefit formulas, and retirement age—is needed. Political and practical hurdles remain, but balancing solvency with fairness is essential for Social Security’s future.

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