Social Security's 2026 COLA Will Get a Bump From President Trump's Tariffs. Here's Why It May Not Be Enough.

More than half of retired workers surveyed by The Motley Fool say Social Security benefits failed to keep pace with rising prices over the last two years because the annual cost-of-living adjustments (COLAs) were too small. That problem is likely to repeat itself next year despite benefits getting a boost from President Trump's tariffs.

Here's what you should know.

Image source: Official White House Photo by Joyce N. Boghosian.

President Trump's tariffs have caused inflation to increase

President Trump in his first term described himself a "tariff man," saying foreign countries should pay for the privilege of doing business in the United States. However, his assertion that foreign exporters foot the bill is incorrect. Domestic importers remit tariffs to U.S. Customs and Border Protection, meaning the duties are a tax on Americans.

Importers can in some cases persuade exporters to bear a portion of the burden, but most costs associated with Trump's trade war are landing squarely on Americans. The Wall Street Journal in September reported, "Several economists estimate that American businesses paid 50% to 60% of Trump's tariffs to date." The rest was split between exporters and consumers.

More recently, Goldman Sachs economists estimated U.S. businesses and consumers are collectively paying 77% of tariffs imposed by the Trump administration, with the heaviest burden now shifting toward consumers as companies pass along price increases to curb the impact on their profit margins.

Inflation as measured by the Consumer Price Index (CPI) dropped to 2.3% in April 2025, the lowest level in four years. But tariffs have since increased the average tax on U.S. imports to 11.6%, the highest level since 1943, according to the Tax Foundation. In turn, CPI inflation has reaccelerated in the months since Trump started his trade war, hitting 2.9% in August.

That trend is likely to continue. The Wall Street Journal in October surveyed 62 economists and the median estimate put CPI inflation at 3.1% in December 2025. In other words, most economists believe tariffs imposed by President Trump will keep pushing consumer prices higher through the end of the year. That's bad news for Social Security beneficiaries.

Accelerating inflation means Social Security's 2026 COLA could be too small

The Social Security Administration determines cost-of-living adjustments (COLAs) based how CPI-W inflation (a subset of the CPI) changes in the third quarter. Specifically, the average CPI-W reading from July to September in the current year is divided by the same figure from the previous year, and the percent increase becomes the COLA in the next year.

The Senior Citizens League anticipates a 2.7% COLA in 2026, which matches the estimate from the Social Security Board of Trustees. That would be two-tenths of a percentage point larger than the pay increase beneficiaries received in 2025. If those forecasts are correct, the average retired worker will receive an extra $54 per month next year. But there are two reasons that additional income may not be enough to offset rising costs.

First, consumers have yet to feel the full impact of President Trump's tariffs. As mentioned, most economists think inflation will increase through the end of the year, but COLAs paid to beneficiaries will only account for inflation through September. In other words, if tariffs continue to push prices higher after September, those cost increases will not be reflected in the 2026 COLA.

Second, the CPI-W tracks prices based on the spending habits of hourly workers, but young people in the workforce spend money differently than retirees on Social Security. Notably, retirees tend to spend more on housing and medical care, and inflation in those categories has outpaced the overall CPI-W year to date.

In other words, from the perspective of retired workers, the CPI-W places too little emphasis on housing and medical care prices. And because prices in those spending categories are rising faster than the overall CPI-W, Social Security's 2026 COLA will not fully compensate retirees for those costs. Put differently, Social Security's 2026 COLA will likely be too small, in which case benefits will lose purchasing power next year.

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.