Social Security's 2026 COLA Will Get a "Trump Bump" -- It May Not Be Enough to Keep Retirees Ahead of Inflation

Key Points

• President Trump's tariffs have made inflation worse, and consumer prices are likely to continue climbing as companies pass along more of the tariff-driven cost increases.

• The Social Security Trustees estimates benefits will get a 2.7% cost-of-living adjustment (COLA) in 2026, two-tenths of percentage point higher than the COLA in 2025.

• Social Security’s COLAs are based on CPI-W inflation, which understates the importance of housing and medical care expenses from the perspective of retired workers

• The $23,760 Social Security bonus most retirees completely overlook ›

A 2025 survey conducted by the Employee Benefit Research Institute shows more than half of retired workers expect to make substantial spending cuts next year due to inflation. For many of those people, that concern is rooted in fear that Social Security benefits will lose purchasing power.

Indeed, more than half of retirees surveyed by The Motley Fool say Social Security payments failed to keep up with rising prices over the last two years due to insufficient cost-of-living adjustments (COLAs). And that problem is likely to repeat itself next year despite benefits getting a "bump" from President Trump's tariffs.

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Here's what retired workers should know.

Image source: Official White House Photo by Daniel Torok.

President Trump's tariffs have caused a resurgence in inflation

President Trump says tariffs are "the greatest thing ever invented." But he has incorrectly claimed on countless occasions that foreign exporters pay the bill rather than American businesses and consumers. Experts and a plethora of economic say otherwise.

Tariffs are remitted to the U.S. government by importers. Businesses in certain cases may persuade exporters to shoulder some of the costs, but Americans pay a large portion of the bill. The Wall Street Journal recently wrote, "Several economists estimate that American businesses paid 50% to 60% of Trump's tariffs to date." The remainder was split between exporters and consumers.

Consumer Price Index (CPI) inflation dropped to 2.3% in April 2025, the lowest level in four years. But tariffs imposed by President Trump have since increased the average tax on U.S. imports to 17.4%, the highest level since 1935, according to the Budget Lab at Yale University. In turn, consumer prices have increased more rapidly in the months since tariffs took effect.

CPI inflation measured 2.4% in May, 2.7% in June, 2.7% in July, and 2.9% in August. CPI inflation is on pace to reach 3% in September, according to a forecasting tool from the Federal Reserve Bank of Cleveland. And the resurgence in inflation is likely to persist through the end of the year. Among 67 economists surveyed by The Wall Street Journal, the median estimate puts CPI inflation at 3.1% in December.

What the resurgence in inflation means for Social Security's 2026 COLA

Social Security benefits get an annual cost-of-living adjustment (COLA) to ensure payments increase at the same pace as inflation. The Social Security Administration determines those COLAs based on the CPI-W, a subset of the Consumer Price Index.

Here's how it works: The CPI-W reading from the third quarter of the present year (July through September) is divided by the CPI-W reading from the third quarter of the last year. The percent increase becomes the COLA in the next year. For instance, the CPI-W increased 2.5% in the third quarter of 2024, so Social Security benefits got a 2.5% COLA in 2025.

The Social Security Board of Trustees anticipate a 2.7% COLA in 2026, two-tenths of a percentage point more than what beneficiaries received this year. If the current forecast is accurate, the average retired worker will receive an extra $54 per month in benefits next year. But there are two reasons that extra money is unlikely to fully offset rising prices across the economy.

First, consumers have yet to feel the full impact of President Trump's tariffs. Businesses have absorbed a large percentage of the cost increases to date, but Goldman Sachs economist Jan Hatzius estimates two-thirds of tariff-driven price increases will be passed along to consumers by October, up from about 22% through June. That means inflation is likely to worsen through the end of the year, but the COLA will only consider inflation data through September.

Second, the CPI-W tracks inflation based on the spending patterns of workers that earn an hourly wage. But people in the workforce tend to be younger (and spend money differently) than retirees on Social Security. Most notably, retirees generally spend more on housing and medical care, and inflation in those spending categories has consistently outpaced overall CPI-W inflation this year.

That means, from the perspective of retirees, the CPI-W understates the importance of housing and medical care expenses. And because prices within those categories are rising more quickly than the overall CPI-W, the 2026 COLA will effectively underestimate the true pricing pressures that retired workers face. The result will be an insufficient COLA next year, which is another way of saying benefits will lose purchasing power.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.