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

A flat-rate COLA at the 20th percentile would delay Social Security's trust fund insolvency by two years from its current 2032 projection, CRFB said. Combined with other policies, such as an employer compensation tax proposal, the merged trust funds could remain solvent for 75 years.

If Congress had adopted the flat-rate COLA when it was first proposed by former Rep. Tim Penny in 1987, the program would have achieved 75-year solvency at the time, delaying insolvency to 2071. CRFB estimates it would have covered about three-quarters of the solvency gap through 2100.

The proposal follows a broader debate on retirement finances, with some analysts now questioning the traditional 4% withdrawal rule.

Maya MacGuineas, CRFB's president, told FOX Business that the analysis is "a stark reminder of the real cost of waiting to save Social Security." She said the plan would have "protected lower-income beneficiaries and reduced old-age poverty" if adopted decades ago. "Now, that same plan would only delay insolvency another two years," she added.

Social Security's trustees project the trust funds will run out in 2032, triggering automatic benefit cuts of 22% for all beneficiaries. That would reduce annual benefits for a medium-income dual-earning couple by about $16,900 starting in 2033, the Social Security Administration has said.