FREE NEWSLETTER
Projections for the 2027 COLA are around 3.5%, but that could be the last such increase.
As part the effort to fix SS solvency, the idea of a flat fixed dollar COLA has surfaced again. In short that would mean most retirees would receive less than under the current calculation.
For example, the COLA adjustment would be based on a certain level of benefits, say the 20th percentile. That is currently about $1,200 to $1,300 per month. So, 3.5% of $1,250 is $43.75 or a COLA of $44.00. That would be the dollar amount of everyone’s COLA. Therefore, beneficiaries at or below the 20% percentile will receive an equal or greater amount than under the current system and 80% will receive a lower COLA.
The Committee for a Responsible Federal Budget estimates that at the 20th percentile a Flat-Rate COLA enacted in 2027 would close half of Social Security’s 75-year shortfall; at the 30th percentile it would close two-fifths of Social Security’s long-term gap.
Needless to say the AARP strongly opposes this approach, saying it would especially harm older retirees.
Another option being mentioned is a straight COLA cap
In any case, lower future COLAs in some form may be on the horizon. Time to plan?
I posted a similar question a while back regarding a potential future 22% cut to benefits. Many people’s sentiment was to not worry, the politicians would never let that happen. And that is probably true, still, you would be remiss to not plan for a scenario such as a COLA cap.
I still maintain that current retirees as well as current workers will have to make some sacrifices.
I agree and I would add employers too, possibly a slightly higher FICA percentage than workers. Any COLA change is prospective and never guaranteed in any case. I have said many times that people retiring with the FRA max SS benefit should either not receive a COLA or not receive one for the first five years after retirement.
Free Newsletter
Arrives weekly.