Cost-of-living adjustments (COLA), a scheme which ensures continuous payments and the highest social security benefits for retirees, should be limited, as per the recommendations of a public policy think tank. The think tank, The Committee for a Responsible Federal Budget (CRFB), says that over $300 billion could be saved up in the federal budget if there is a cap on COLA.
The exact numbers given by CRFB are saving between $35 billion and $385 billion over 10 years, and could actually help Social Security continue by preventing an expected 24% cut in Social Security benefits in 2032, which would happen when the trust fund runs out.
If the 24% cut occurs, a typical couple retiring in 2033 could lose about $18,400 a year. Right now, Social Security benefits increase each year based on inflation, measured by the consumer price index for hourly and clerical workers (CPI-W), as per the report by Money Digest. For 2026, the SSA has set the COLA increase at 2.8%, meaning a retiree earning $24,000 a year would get an extra $650. A retiree receiving the highest annual benefit, $49,400, would get an extra $1,400 in 2026.
A cap for the top 25% of benefits could save $115 billion in 10 years; a 50th percentile cap could save $385 billion; and a 90th percentile cap could save $35 billion. Social Security income is based on the 35 highest earning years of a retiree, so the cap mostly affects high earners. In 2026, the average retiree will get $2,071 a month ($24,852 a year), well below the proposed cap, as stated in the report by Money Digest. The maximum retirement benefit at age 67 is $4,152 a month ($49,824 a year), and if delayed to 70, it rises to $5,430 a month ($65,160 a year).
Retirees are usually taxed if they earn at least $25,000 alone or $32,000 as a couple; that money goes back to Social Security and Medicare, as reported by Money Digest. But under OBBBA, deductions of up to $6,000 for singles and $12,000 for couples will reduce Social Security income. These new tax rules could cut $30 billion per year from Social Security funding and make the trust fund run out a year earlier.
The plan would limit annual cost-of-living increases for retirees who get the highest Social Security benefits to help prevent future cuts.
Q2. Why is Social Security running out of money?
Social Security funds are falling because more people are retiring, fewer young workers are paying taxes, and new senior tax deductions reduce income to the trust fund.
The exact numbers given by CRFB are saving between $35 billion and $385 billion over 10 years, and could actually help Social Security continue by preventing an expected 24% cut in Social Security benefits in 2032, which would happen when the trust fund runs out.
If the 24% cut occurs, a typical couple retiring in 2033 could lose about $18,400 a year. Right now, Social Security benefits increase each year based on inflation, measured by the consumer price index for hourly and clerical workers (CPI-W), as per the report by Money Digest. For 2026, the SSA has set the COLA increase at 2.8%, meaning a retiree earning $24,000 a year would get an extra $650. A retiree receiving the highest annual benefit, $49,400, would get an extra $1,400 in 2026.
How a Social Security COLA cap would work
In its proposed plan, CRFB says that Social Security payments won’t be able to increase COLA at will. Like if the COLA cap in $900, $50,000 Entitled retiree will keep getting $900 instead of $1000 under CPI-W is 2% in 2035.A cap for the top 25% of benefits could save $115 billion in 10 years; a 50th percentile cap could save $385 billion; and a 90th percentile cap could save $35 billion. Social Security income is based on the 35 highest earning years of a retiree, so the cap mostly affects high earners. In 2026, the average retiree will get $2,071 a month ($24,852 a year), well below the proposed cap, as stated in the report by Money Digest. The maximum retirement benefit at age 67 is $4,152 a month ($49,824 a year), and if delayed to 70, it rises to $5,430 a month ($65,160 a year).
Why a COLA cap may be needed
Social Security is running out of money because more people are retiring and fewer young workers are paying taxes. New tax cuts and senior deductions under the One Big Beautiful Bill Act (OBBBA) will make the problem worse.Retirees are usually taxed if they earn at least $25,000 alone or $32,000 as a couple; that money goes back to Social Security and Medicare, as reported by Money Digest. But under OBBBA, deductions of up to $6,000 for singles and $12,000 for couples will reduce Social Security income. These new tax rules could cut $30 billion per year from Social Security funding and make the trust fund run out a year earlier.
FAQs
Q1. What is the new Social Security COLA cap plan?The plan would limit annual cost-of-living increases for retirees who get the highest Social Security benefits to help prevent future cuts.
Q2. Why is Social Security running out of money?
Social Security funds are falling because more people are retiring, fewer young workers are paying taxes, and new senior tax deductions reduce income to the trust fund.