Since its inception, Social Security has used a percentage-based COLA to protect benefits from inflation. This method gives higher absolute increases to those with larger benefits, even though all retirees face similar cost-of-living pressures. The flat-rate proposal instead provides the same dollar adjustment to every beneficiary, aiming to better protect low-income retirees.
Here is a weird math fact about Social Security. Right now, every retiree gets the same percentage bump each year to keep up with rising prices. That means a retiree collecting a higher benefit gets a bigger dollar increase than someone collecting a lower benefit - even though both face the same grocery bill.
A flat-rate COLA would flip that. Instead of a percentage, everyone would get the same dollar amount added to their monthly check. It is not a new idea.
Former Representative Tim Penny first proposed it back in 1987. If Congress had adopted it then, Social Security would have stayed solvent all the way through 2071 - nearly half a century.
But Congress did not adopt it, and now the math is much harder.
A recent study by the Committee for a Responsible Federal Budget, conducted by Urban Institute researcher Karen Smith, found that [deleted repeated sentence: "tying the COLA to a fixed dollar amount at the 20th benefit percentile would cover half of Social Security's 75-year funding gap."] Set it at the 30th percentile, and it closes about 40% of the gap. Those are big numbers for a single policy change.
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The flat-rate approach is designed to protect the people who need it most. For retirees in the bottom fifth of lifetime earnings, a 20th‑percentile flat COLA would reduce their benefits by just 3% by 2065. Even under the higher 30th‑percentile option, those same low‑earning retirees would see a 1% increase. [Deleted contradictory clause: "and both options would raise the benefits received by the bottom fifth of earners by 13% to 14%."]
The trade-off falls on higher earners. The top fifth of lifetime earners would see their benefits drop by 19% by 2065 under the 20th-percentile flat rate. Under the 30th-percentile option, the decline is 17%.
The catch is that even this change only buys two extra years of solvency. [Deleted repeated sentence: "Social Security's main trust funds are currently projected to run dry in 2032."] A flat-rate COLA would push that by two years.
That is not a fix. It is a bridge.
Maya MacGuineas, CRFB's president, said, "One of the biggest takeaways of this particular solution is that it is a stark reminder of the real cost of waiting to save Social Security." She noted that adopting a flat-rate COLA back when Penny proposed it "would have achieved solvency through 2071, nearly half a century from now, and would have done so by protecting lower-income beneficiaries and reducing old-age poverty; now, that same plan would only delay insolvency another two years."
The clock is ticking. If nothing changes by 2032, benefits get cut 22% automatically for everyone. That is not a theoretical threat - that is what current law says.
MacGuineas added that "there are plenty of options out there that, when combined, can save Social Security from abrupt across-the-board cuts in just six years. But taking options off the table and waiting until the last minute leaves fewer and fewer ways to make the math work." A flat-rate COLA is one piece of a larger puzzle. Others include raising the payroll tax cap, lifting the retirement age, or tweaking the benefit formula.
For investors, the takeaway is less about picking a political winner and more about understanding that Social Security is unlikely to deliver the same benefits to you as it does to current retirees - especially if you earn above the median. Planning around that reality is the sensible move. The sooner policymakers act, the softer the landing for everyone.
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