Retirees Could Lose $77,900 Under New COLA Plan: 80% Face Smaller Social Security Raises

An analysis by the AARP Public Policy Institute estimates that 80% of Social Security beneficiaries would receive smaller annual increases under a flat-rate COLA. For one hypothetical retiree, the cumulative loss could reach about $77,900 over retirement.

The proposal is not law. It is one of several ideas being discussed as policymakers look for ways to address Social Security's long-term financial shortfall.

How the Current COLA System Works

Social Security benefits have received automatic cost-of-living adjustments since 1975. The Social Security Administration calculates the annual increase using the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. The 2026 COLA was 2.8%.

Under the current system, that percentage is applied to each person's benefit. Someone receiving a larger payment therefore receives a larger dollar increase. The AARP Public Policy Institute examined what would happen if that system were replaced with a flat-rate adjustment. Its analysis was published by Rich Johnson on 19 August.

What the Flat-Rate Proposal Would Do

The alternative would not eliminate the annual COLA. Instead, it would turn the percentage increase into a fixed dollar amount based on the benefit received by someone around the 20th percentile of the benefit distribution. AARP estimates that the 20th-percentile retired worker benefit was $1,223 a month in 2025.

If the 2.8% COLA for 2026 had been converted into a flat increase using that figure, the monthly adjustment would have been about $34.20. The average retired worker would have received $34.20 instead of the $57.90 provided under the current system, meaning roughly $285 less over the year. The bigger concern is what happens when smaller increases continue for decades.

How a $77,900 Loss Could Build

AARP examined a hypothetical worker who retired at 65 in 1998 and began receiving the average annual benefit for a new 65-year-old retiree, about $11,200. Under the existing COLA formula, the annual benefit would have grown to about $22,600 by age 93 in 2026.

Under the flat-rate system, AARP estimates it would have reached only about $18,000. The difference at age 93 would therefore be around $4,600 a year. Across the entire retirement period, the cumulative shortfall would reach approximately $77,900 in 2026 inflation-adjusted dollars. The analysis estimates that inflation would have eroded 28% of the purchasing value of the benefit between ages 65 and 93 under the alternative formula.

Older Beneficiaries Could Face Greater Pressure

The consequences could be particularly difficult for people in their 80s and 90s. Older Americans often have fewer opportunities to increase their income, while healthcare and long-term care costs can become more significant. AARP's analysis gives a stark example.

A woman who retired at 65 in 1998 and received the average benefit awarded to female retired workers that year would have an annual benefit of about $18,100 at age 93 under the current system. Under the flat-rate approach, AARP estimates that figure would fall to about $15,800, placing her slightly below the poverty line used in the analysis. The change could also affect people who have received disability benefits for many years.

Social Security's Funding Problem

The debate over changing COLA comes as Social Security faces a wider financial challenge. The 2026 Social Security Trustees Report projects that the Old-Age and Survivors Insurance Trust Fund will become depleted in the fourth quarter of 2032. If Congress takes no action, incoming revenue would then be enough to pay 78% of scheduled benefits.

The combined retirement and disability trust funds are projected to remain able to pay scheduled benefits until 2034, after which about 83% of scheduled benefits would be payable under current projections. Those figures have fuelled debate over how to close the programme's long-term funding gap. Changing the COLA formula is only one possible approach.

A Proposal, Not an Immediate Benefit Cut

The $77,900 figure should not be interpreted as money retirees are about to lose. It comes from a hypothetical analysis showing what the financial impact could have been if a flat-rate COLA had been used over a long period.

No such change has been enacted. The current COLA formula remains in place, and beneficiaries continue to receive annual adjustments under existing law. For retirees, the distinction between a proposal and an enacted benefit change remains critical as the debate over Social Security's future continues.