One type of Social Security adjustment could cut the 75-year shortfall in half

A new proposal from the Committee for a Responsible Federal Budget suggests a change to how Social Security cost of living adjustments are calculated. The shift centers on moving to a flat rate model rather than the current system, a move designed to slow benefit growth for top earners while protecting those at lower income levels.

Under this plan, all beneficiaries would receive the same cost of living adjustment, pegged to the rate received by a beneficiary at the 20th percentile. An analysis from the Urban Institute indicates that this structure could close 50 percent of the projected 75 year fiscal shortfall for the program. A flat rate adjustment set at the 30th percentile would close roughly 40 percent of that gap.

This approach is progressive. It slows benefit growth most for individuals with the highest lifetime earnings. For instance, if the 20th percentile flat rate were applied, benefits for the top fifth of earners would decline by nearly 20 percent by 2065. Conversely, the bottom quintile of earners would actually see their benefits increase.

The findings highlight the urgency of addressing the program's insolvency, which is currently projected for 2032. At that point, automatic benefit cuts of 22 percent will trigger to match incoming tax revenue. Experts note that while this adjustment alone delays insolvency by two years, combining it with other policy changes remains the most effective path to long term stability.

Waiting to act increases the difficulty of fixing the shortfall. Had a similar plan been adopted when originally proposed in 1987, the program would have achieved solvency through 2071. Today, the focus is on identifying ways to avoid the looming 2032 deadline.