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Social Security's annual raise is supposed to stop inflation from eating away at retirees' buying power. AARP, meanwhile, sees a painful trade-off.

"For 80% of beneficiaries, the flat-rate COLA would erode the inflation protection that Social Security has always provided," AARP warned (1).

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The flat-rate COLA would replace today's percentage increase with the same dollar raise for everyone. The nonpartisan Committee for a Responsible Federal Budget argues (2) that the change would "increase cost-of-living adjustments for low earners," while potentially closing half of Social Security's projected 75-year funding shortfall.

Social Security's current COLA applies the same inflation-based percentage to every beneficiary's payment. The 2.8% increase for 2026 added approximately $58 to the average retired worker's monthly benefit, for example

Under the proposal, Social Security would base everyone's raise on a recipient near the bottom 20% of monthly payments. If that person received $34 more per month, every beneficiary would get the same $34 raise, regardless of their current benefit.

That's about $24 less than the existing COLA, and would leave the average recipient about $285 behind in the first year alone.

It gets worse when you consider that smaller raises compound over an entire retirement.

According to AARP's analysis, someone who retired at 65 in 1998 could have collected approximately $77,900 less by age 93 (3) under the alternative formula.

On the other hand, the lowest fifth of earners would see their payable benefits increase by an estimated 13% to 14%, according to the CRFB.

Even so, the flat-rate COLA would only buy an extra two years before insolvency. A lasting fix would need other measures to keep the system alive.

In the meantime, some affected retirees could pay slightly less federal income tax because they would receive less income. But those savings generally wouldn't replace the benefits they lost.

Rather than counting on Congress to preserve the existing formula, retirees can strengthen the other sources of income supporting their retirement.

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One option is to add an income-focused asset that doesn't depend entirely on Social Security or stock dividends.

For example, the Arrived Real Estate Income Fund is designed to generate regular dividend income while focusing on capital preservation.

The fund already manages more than $83 million in assets and has historically delivered an annualized cash yield of more than 8.4%. Even the "aristocrats" of dividend stocks struggle to reach a high-water mark of 5.51%, according to Morningstar (4).

How it works is simple: Arrived offers short-term loans for professional real estate projects seeking to renovate, refinance or fund new construction. Each loan goes through a disciplined selection process and is backed by residential real estate, adding another layer of underwriting rigor and downside protection.

Even better, Arrived Real Estate Income Fund investors also have quarterly liquidity options beginning six months after their initial investment, offering more flexibility than many traditional income-focused investments.

If smaller Social Security raises put more pressure on your budget, CDs can add some certainty.

With a certificate of deposit, you lock in a rate up front, so your earnings stay fixed for a set term, even if market rates slip. Just make sure you won't need the money before maturity, since early withdrawals can trigger a penalty.

For those seeking predictable, reliable growth, a platform like CD Valet can help you find higher-yield options that work for you, whether you're saving for something soon or building a cushion for the long haul.

CD Valet tracks over 40,000 verified rates from FDIC-insured banks and NCUA-insured credit unions nationwide. Unlike other websites, it shows every publicly available rate, ensuring you have a comprehensive view of the market.

Plus, its CD rates are updated continuously, so you can shop, compare and open CDs with ease.

If smaller Social Security increases leave you with less dependable income than expected, you may want to create another source of predictable retirement income.

With Ethos, you can compare instant-income, fixed-growth and market-index growth annuities from multiple A+ rated carriers. Already trusted by more than 700,000 Americans, they connect you with a retirement income expert who can tailor an annuity to your savings, goals and desired income.

Depending on the product, you can get annuity offer rates of up to 10.5% a year. Some options even provide tax-deferred growth or protect your principal and income from market downturns.

See how much guaranteed income your savings could provide.

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AARP (1); Center on Budget and Policy Priorities (2); Kiplinger (3); Morningstar (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.