Social Security Retirees Just Got Bad News About the 2026 COLA From Washington

Social Security recipients depend on cost-of-living adjustments (COLAs) to keep up with rising prices. Absent those annual pay increases, benefits would fall behind inflation and lose purchasing power over time. In other words, retired workers would essentially receive a little less money each year.

The Social Security Administration cannot calculate the 2026 COLA for several months. But the Congressional Budget Office (CBO) expects benefits to increase 2.4% next year. That would be the smallest raise for retirees since 2021. But CBO published that forecast before President Trump took office.

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Since then, retired workers have received bad news from Washington. The Trump administration in early April imposed the largest tariff hike in history. And while the fallout from the dramatic shift in trade policy is still unknown, most economists think inflation will increase. That means Social Security's 2026 COLA could top expectations.

While ostensibly good, that may actually have negative consequences for retirees. A large COLA means the Social Security Trust Fund could be depleted earlier than anticipated, leaving lawmakers in Congress with less time to avoid substantial benefit cuts. Read on to learn more.

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Social Security's COLAs keep benefits aligned with inflation

The Social Security Administration uses a subset of the Consumer Price Index (CPI) known as the CPI-W to calculate annual COLAs for beneficiaries.

That math is simple: The CPI-W from the third quarter of current year is divided by the same number from the previous year. The percent increase becomes the COLA in the next year. For example, the CPI-W increased 2.5% in the third quarter of 2024, so benefits rose 2.5% in 2025.

Importantly, the third quarter runs from July through September, meaning the Social Security Administration cannot calculate the official 2026 COLA until third-quarter CPI-W data is available in October 2025. So we are several months away from a finalized figure.

Economists expect inflation to increase as President Trump's tariffs take effect

Forecasting future inflation is challenging in the current economic environment due to uncertain U.S. trade policy. President Trump has on multiple occasions modified or delayed tariffs shortly after imposing them. That includes a recent 90-day pause on his most aggressive reciprocal tariffs.

Nevertheless, the consensus estimate among 64 economists surveyed by The Wall Street Journal says CPI inflation will trend steadily higher throughout the year to reach 3.5% in December 2025. That represents a 1.1 percentage point increase from 2.4% in March 2025.

Importantly, CPI and CPI-W are not identical, but we can assume tariffs will impact both metrics equally. So, because CPI-W inflation was 2.2% in March 2025, that figure could increase 1.1 percentage points to 3.3% by December 2025. In that scenario, Social Security's 2026 COLA would likely land somewhere around 3%.

Social Security benefit cuts could happen sooner if the 2026 COLA is bigger than expected

The CBO estimates the Social Security Trust Fund -- the financial account that pays benefits to retirees, spouses, survivors, and disabled workers -- will be depleted by fiscal 2034. That's because the program has regularly run deficits in recent years, meaning the cost of paying benefits has exceeded revenues from taxes and trust fund interest.

Importantly, Social Security benefits will not stop once the trust fund is depleted, but the payments will be reduced unless lawmakers in Congress find a solution for the financing problem. Specifically, once the trust fund is depleted (eliminating revenue from interest earned on trust fund assets), the remaining tax revenues will cover 77% of scheduled benefits. That means payments could be cut by 23% in 2035.

However, that projection assumes Social Security benefits receive a 2.4% COLA in 2026. That seems unlikely, given that economists expect tariffs to raise inflation in the remaining months of the year. And if the COLA is bigger than forecast, Social Security's costs will top estimates, meaning the trust fund may be depleted before 2034.

That would leave Congress with less time to avoid significant benefit cuts, which is bad news for retired workers and other Social Security beneficiaries.

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