The New Proposal: A Cap on COLAs for High Earners

The idea comes from the Committee for a Responsible Federal Budget (CRFB), a bipartisan nonprofit focused on federal fiscal policy, as part of its Trust Fund Solutions Initiative. Working with the Urban Institute, which modeled the proposal using its DYNASIM microsimulation model, CRFB outlined what it calls a Social Security COLA cap.

Here’s the key detail: under this plan, every single beneficiary would still receive a COLA each year. Nobody’s adjustment would be eliminated entirely. But the size of that adjustment would be capped in dollar terms for retirees receiving the largest monthly benefits — a group that, by definition, also had the highest lifetime earnings.

To make this concrete, CRFB uses an illustrative example: if a given year’s COLA works out to 2%, a retiree collecting $50,000 a year in benefits would normally see a $1,000 increase. Under the cap, that increase might instead be limited to $900. Retirees whose total benefits fall below roughly $45,000 a year would see no change at all — they’d continue getting the full COLA exactly as they do under current law.

The cap itself would be pegged to the COLA dollar amount received by a beneficiary at a relatively high point in the benefit distribution — CRFB’s white paper models this at the 75th percentile of primary insurance amount (PIA), which is the benefit a worker would receive by claiming at full retirement age.

That cap would then be adjusted depending on when someone actually claimed benefits: reduced for those who claimed early at 62, and increased for those who waited until 70. It would also be adjusted downward for spousal benefits, which are calculated differently from a worker’s own benefit.