A change in how Social Security’s annual cost-of-living adjustment, or COLA, is calculated could delay the program’s projected insolvency and substantially reduce its long-term funding gap, according to a new analysis.

Social Security’s COLA is currently applied as a percentage increase to benefits, meaning beneficiaries with larger monthly checks receive larger dollar increases when the annual adjustment is made. The proposal analyzed by the nonpartisan Committee for a Responsible Federal Budget, or CRFB, would instead cap the dollar amount of annual Social Security benefit increases for beneficiaries with higher benefit levels. The approach resembles a flat-rate COLA proposal introduced in 1987 by former Rep. Tim Penny, who is now one of the think tank’s co-chairs.

Under a flat-rate COLA, all Social Security beneficiaries would receive the same dollar increase each year. In CRFB’s analysis, that increase would be tied to the COLA received by a beneficiary at a specific point in the benefit distribution, such as the 20th percentile. CRFB said that design would effectively combine a COLA cap for higher-benefit recipients with a COLA floor at that level.

CRFB asked Karen Smith of the Urban Institute to estimate how a flat-rate COLA set at the 20th percentile and the 30th percentile beneficiary would affect Social Security’s finances and benefit levels. The analysis found that a flat-rate COLA at the 20th percentile would close 50% of Social Security’s 75-year shortfall compared with Smith’s baseline. A flat-rate COLA set at the 30th percentile would close about 40% of the shortfall.

The policy would be relatively progressive, CRFB said, because it would slow benefit growth most for retirees with the highest lifetime earnings and the most retirement income.

If the flat-rate COLA were set at the 20th percentile, the bottom fifth of lifetime earners would see benefits decline by 3% in 2065, compared with a 19% decline for the top fifth of earners. If the flat-rate COLA were set at the 30th percentile, the bottom quintile’s benefit would increase by 1%, while benefits for the top fifth would decline by 17%.

CRFB also said that either a 20th-percentile or 30th-percentile flat-rate COLA would increase Social Security benefits for the lowest quintile by 13% to 14%.

A flat-rate COLA set at the 20th percentile would delay insolvency for Social Security’s main trust funds by two years. CRFB said that if the approach were paired with other measures, such as its employer compensation tax proposal, it could keep the combined trust funds solvent for 75 years or close to that period.

That distinction matters because Social Security’s projected shortfall is large enough that a single benefit or revenue change may not fully resolve it on its own. CRFB framed the flat-rate COLA as one possible component of a broader package, rather than a standalone fix for the program’s long-term financing gap.

CRFB also analyzed what might have happened if Congress had adopted a flat-rate COLA in 1987, when Penny proposed the idea. The group’s estimates suggest the policy would have achieved 75-year solvency at the time and delayed insolvency until 2071.

The group said the 1987 version also would have covered about three-quarters of the solvency gap through 2100, giving lawmakers time to pursue additional gradual changes to address the remaining shortfall.

The latest estimates place Social Security insolvency in 2032. At that point, after the trust funds are depleted, benefits would face an automatic 22% cut to align payments with incoming tax revenue. For a medium-income, dual-earning couple, that would amount to a $16,900 annual benefit cut beginning in 2033.

CRFB argued that the approaching trust fund insolvency and the consequences for American retirees should prompt policymakers to act quickly to strengthen Social Security’s finances.

"One of the biggest takeaways of this particular solution is that it is a stark reminder of the real cost of waiting to save Social Security," CRFB president Maya MacGuineas told FOX Business.

"Adopting a flat-rate COLA back when Congressman Penny proposed the idea would have achieved solvency through 2071, nearly half a century from now, and would have done so by protecting lower-income beneficiaries and reducing old-age poverty; now, that same plan would only delay insolvency another two years," she said.

"The good news is there are plenty of options out there that, when combined, can save Social Security from abrupt across-the-board cuts in just six years. But taking options off the table and waiting until the last minute leaves fewer and fewer ways to make the math work," MacGuineas added.