The Social Security program has been running for close to a century now, however, its future appears to be up in the air as funding pressures continue to grow with each passing year. While benefits are primarily funded through the revenue received from the dedicated Social Security payroll tax contributions, there are also two major trust funds used to fill the gaps.
These trust funds are the Old Age and Survivors Insurance (OASI) trust fund, and the Disability Insurance (DI) trust fund. In recent years, the program has had to rely more and more on these trust funds to pay out benefits due to a disproportionate ratio of workers who contribute to the payroll tax to retirees who claim benefits. As a result, the OASI is now projected to become insolvent by 2033 if no sustainable change is made to the program soon.
Starting in January, all Social Security benefits will be increased by 2.8% due to the annual Cost of Living Adjustment (COLA), which is aimed at countering the effects of year over year inflation hikes. Since the COLA is a percentage increase, recipients receiving higher benefit amounts will naturally receive a bigger boost to their benefits in 2026. As such, a new proposal has been brought forward aimed at putting a cap on the COLA increase for high earners so as to relieve some of the financial pressure faced by the Social Security program at large. Here is what you need to know.
CRFB proposes a cap for annual COLA increases
On October 24th, the Social Security Administration (SSA) officially confirmed a 2.8% COLA increase for all benefits as of January 2026. On average, this would add around $56 to a retiree’s benefit. The Committee for a Responsible Federal Budget (CRFB) has recently published a white paper proposing that the COLA increase be capped for those earning the highest benefit amounts issued by the SSA. According to CRFB, the COLA increase would still be implemented to all benefits, however, the increase would be limited to a specific dollar amount for those who qualify for the higher amounts in the benefit payment spectrum.
The published paper explains the COLA cap as follows: “If inflation in 2035 resulted in a 2 percent COLA and the cap were set at $900, someone receiving a $50,000 benefit per year would normally get a $1,000 increase. Under the cap, that person would instead receive $900. Retirees receiving $45,000 or less in benefits would see no change and would get the same COLA as they do under current law.”
Who would this cap affect?
According to the CRFB’s proposal, placing the cap at the 75th percentile of benefits would “save $115 billion over 10 years and cover about one-10th of the program’s long-term funding shortfall.” The report further states that, “adjusting the cap to the 50th or 90th percentile could save anywhere from $35 billion to $385 billion over a decade, closing between one-20th and one-quarter of the 75-year solvency gap.”
CRFB claims that this proposal will save money immediately and will “help strengthen Social Security in the long run.”
CRFB concludes the report by stating that, “a COLA cap could meaningfully and quickly improve the solvency of Social Security’s trust funds while concentrating adjustments on those most able to bear them, maintaining full inflation protection for most beneficiaries, continuing to maintain inflation protection on an adequate level of benefits for all beneficiaries, and ensuring solvency solutions are spread over more generations.” Adding that, “it would do so without meaningfully weakening work incentives in the program or enacting nominal benefit cuts or freezes.”
It is too soon to know if this COLA cap will become a reality as it is one of several proposed solutions to the projected shortfall of Social Security’s trust funds.