A proposed change to the Social Security cost-of-living adjustment (COLA) could address roughly half of the program's long-term funding gap, but would only extend the life of the combined trust funds by two years, according to a new analysis by the Committee for a Responsible Federal Budget (CRFB). The plan, which would replace the current percentage-based COLA with a fixed-rate increase set at the 20th percentile of benefit growth, is projected to close 50% of the 75-year deficit. However, a mechanical revision based on the 2026 Trustees Report reduces that figure to approximately 43%, as the modeled savings still account for 1.91% of taxable payroll.
The headline figure is based on a 2025 deficit of 3.82% of taxable payroll. The 2026 Trustees report increased that figure to 4.42%. The mechanical revision reduces the 50% figure to about 43%, based on the assumption that modeled savings still account for 1.91% of taxable payroll. This is an initial estimate, not an official actuarial review.
This is important since gradual savings on benefits provide minimal immediate relief. Congress would remain in need of quicker revenue, larger spending reductions, or a combination of both. For investors, the method of financing is more significant than the 75-year timeframe. U.S. core trading remained closed on Monday. Reports from the previous week heightened the policy debate, yet left taxes and benefits unchanged.
The flat-rate approach provides an identical dollar boost for each beneficiary. Under the current percentage-based calculation, those receiving bigger payments see greater increases in dollar terms. As a result, the plan shifts future benefit growth more toward retirees with smaller payments. With the 20th-percentile formula, projected benefits in 2065 drop by 3% for those in the lowest earnings quintile, while those in the highest quintile see a 19% decrease. Still, the lowest quintile gets 13% to 14% more than what would be available after insolvency.
The official funding shortfall is approaching. The retirement trust fund is able to provide full scheduled payments until the fourth quarter of 2032. After that, ongoing revenue would finance 78% of promised benefits. The combined funds are projected to be sufficient through the third quarter of 2034, after which just 83% of promised benefits could be paid. Legislation would be needed to merge the funds. Based on the referenced average monthly benefit of $2,071, a 22% reduction amounts to approximately $456 per month, or about $5,467 per year. This decrease would have an immediate effect on retirees' spending power.
The bipartisan PROMISE Act does not choose a specific tax or benefit method. Instead, it instructs the Social Security Advisory Board to propose legislation that would ensure 50 years of solvency. Congressional committees have the ability to make changes to the bill, but if they do not act, automatic discharge would take effect. AARP is against the accelerated timetable. “But how Congress acts matters,” wrote Nancy LeaMond, the organization’s executive overseeing advocacy and engagement. According to AARP, the schedule limits both review and the ability to amend the proposal. Proponents say the process compels a discussion that Congress has sidestepped. Senator Dick Durbin described it as “transparent, fair, and bipartisan.” The current procedural dispute represents the key political factor.
The payroll tax option has more direct implications for markets. Employees and companies both contribute 6.2% of wages on earnings up to $184,500. This year, the highest amount an employer will pay is $11,439. For example, if the tax cap were removed, someone earning $300,000 would face an additional $7,161 tax bill. The employee would also be responsible for paying this amount. While this scenario does not appear in the PROMISE Act, it highlights the impact on employers with high wage earners.
Maya MacGuineas, president of the CRFB, described the results as showing “the real cost of waiting to save Social Security.” The additional two years underline her point. Putting off action limits slower, incremental choices. Risks are still significant. COLA projections depend on assumptions from the previous year, and the 2026 shortfall is bigger. Lawmakers may also reject the approach, amend the formula, or add new taxes. PROMISE does not alter any benefits on its own. The key point for markets arises once lawmakers decide on the funding structure. Until that decision, the 2032 retirement-fund shortfall persists.
