social security cola: New plan could slash COLA for high earners as Social Security scrambles to avoid 2032 cuts
The exact numbers provided by the CRFB suggest savings of $35 billion to $385 billion over 10 years and could actually help keep Social Security going by preventing the expected 24% cut in Social Security benefits that would occur in 2032 when the trust fund runs out.
If the 24% cut occurs, a typical couple retiring in 2033 could lose about $18,400 a year. Currently, Social Security benefits increase each year with inflation for hourly and clerical workers, as measured by the consumer price index (CPI-W), Money Digest reports. SSA sets the COLA increase for 2026 at 2.8%; This means a retiree earning $24,000 a year would receive an extra $650. A retiree receiving the maximum annual benefit of $49,400 would receive an extra $1,400 in 2026.
How does the Social Security COLA limit work?
In its proposed plan, the CRFB says Social Security payments cannot increase the COLA as it wishes. For example, if the COLA cap is $900, a $50,000 eligible retiree will continue to receive $900 instead of $1,000 under the 2% CPI-W in 2035.
A cap on the top 25% of benefits could save $115 billion over 10 years; A 50 percent cap could save $385 billion; and a 90 percent cap could save $35 billion. Social Security income is based on the retiree’s 35 highest-earning years, so the cap mostly affects high earners. As noted in Money Digest’s report, in 2026 the average retiree will receive $2,071 per month ($24,852 per year); This is well below the recommended ceiling. The maximum retirement benefit at age 67 is $4,152 per month ($49,824 per year), rising to $5,430 per month ($65,160 per year) if delayed until age 70.
Why might a COLA cap be needed?
Social Security is running out of money as more people retire and fewer young workers pay taxes. New tax cuts and cap deductions under the One Big Beautiful Bill Act (OBBBA) will worsen the problem. Retirees are generally taxable if they earn at least $25,000 as a single 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 a year from Social Security funding and cause the trust fund to run out a year early.
FAQ
Q1. What is the new Social Security COLA cap plan?
The plan would cap annual cost-of-living increases for retirees who receive the highest Social Security benefits to help prevent future cuts.
Q2. Why is SSI running out of money?
Social Security funding is falling because more people are retiring, fewer young workers are paying taxes, and new senior tax cuts are reducing trust fund income.
