Social Security's 2026 Raise Comes With a "Trump Bump" -- but It Isn't Going to Be Enough for Most Retirees

America's leading retirement program, Social Security, has experienced several history-making moments in 2025. In August, we celebrated the 90th anniversary of the Social Security Act being signed into law, and in May, we witnessed the average monthly retired-worker benefit surpass $2,000 for the first time.

We also observed history being made with Social Security's 2026 cost-of-living adjustment (COLA). Not only is next year's raise accomplishing something that hasn't occurred since the late 20th century, but it features a boost courtesy of President Donald Trump's tariff and trade policy. Call it a "Trump bump," if you will.

Although historical COLAs would typically be something to cheer, this isn't going to be the case in 2026 for most retirees.

President Trump giving an interview. Image source: Official White House Photo by Joyce N. Boghosian.

Social Security's COLA plays an important role for beneficiaries

The cost of goods and services that Social Security beneficiaries purchase on a regular basis is constantly changing. If, for example, the price of a large basket of goods and services increases by 3% from one year to the next, Social Security payouts would need to climb by a commensurate percentage to avoid a loss of buying power. Social Security's near-annual COLA is the raise that attempts to mirror the inflationary pressures faced by program recipients.

In the 35 years following Social Security's initial retired-worker payout (January 1940), there wasn't any rhyme or reason to COLAs. During the 1940s, no COLAs were passed along. This was followed by the largest-ever adjustment (an increase of 77%) in 1950.

Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was tapped as the program's annual inflation-measuring tool. Since the CPI-W is reported as a single figure each month -- this figure is based on price movements over the trailing-12-month (TTM) period -- it allows for quick and easy year-over-year comparisons.

What's unique about Social Security's COLA calculation is that it only factors in TTM end readings from July through September (the third quarter). If the average third-quarter CPI-W reading from the current year is higher than the average CPI-W reading from the comparable period of the previous year, inflation has occurred, and beneficiaries will receive a raise. For added context, inflation has occurred in all but three years since 1975.

President Trump's tariff policy is beefing up Social Security payouts in 2026

On Oct. 24, the final puzzle needed to calculate Social Security's 2026 raise, the September inflation report, was released by the U.S. Bureau of Labor Statistics. This was nine days later than initially scheduled, due to the federal government shutdown.

Social Security's much-anticipated COLA clocked in at 2.8% for 2026. The average retired-worker beneficiary is expected to see their monthly payout climb by $56 to $2,071 in the new year, based on estimates from the Social Security Administration (SSA). Meanwhile, the average worker with disabilities can expect their monthly payout to rise by $44 to $1,630.

An uptick in the prevailing rate of inflation dramatically lifted Social Security COLAs in recent years. US Inflation Rate data by YCharts.

Comparatively, a 2.8% COLA is somewhat modest considering the SSA passed along raises of 5.9%, 8.7%, and 3.2% from 2022 through 2024, respectively. The 8.7% increase in 2023 was the largest on a percentage basis in 41 years, and the biggest on a nominal-dollar basis in the program's history.

More importantly, it represents a first-of-the-century moment for America's leading retirement program. Including the 2.5% COLA beneficiaries received this year, it's the first time payouts will have climbed by at least 2.5% for five consecutive years since 1988 through 1997, when COLAs reached 2.6% to 5.4% annually.

It's also the first time we've observed tariffs having a meaningful impact on the raise passed along to Social Security beneficiaries.

When Donald Trump unveiled his tariff and trade policy in early April, it called for a 10% sweeping global tariff and higher "reciprocal tariffs" on dozens of countries deemed to have adverse trade imbalances with America. The president's tariff and trade policy has evolved considerably since early April, with multiple deals being announced.

What makes Trump's tariffs such a wildcard is the disparity between output and input tariffs. An output tariff is a duty imposed on a finished product imported into the country, whereas an input tariff is an additional tax on a good used to complete the manufacture of a product domestically (e.g., steel imports).

A December 2024 analysis ("Do Import Tariffs Protect U.S. Firms?") from four New York Federal Reserve economists writing for Liberty Street Economics examined the impact of Trump's China tariffs in 2018 and 2019 on the U.S. economy and stock market. What they found were challenges for U.S. businesses created by input tariffs. Domestic production costs increased, leading to higher prices for consumers.

This modest inflationary impact provided a lift to Social Security's 2026 COLA. Independent 2026 COLA estimates rose by 30 basis points in the months after Donald Trump's tariffs began impacting the U.S. inflation rate.

Image source: Getty Images.

Social Security's Trump bump will come up short for most retirees

On paper, the prospect of a higher nominal-dollar payout likely sounds fantastic to most retired workers. But the inflationary pressures that retired workers are contending with aren't as cut-and-dried as the CPI-W makes them appear.

One of the primary issues for retired-worker beneficiaries is that the CPI-W is inherently flawed. It's an index that's designed to track the cost pressures faced by "urban wage earners and clerical workers." These are typically working-age individuals who aren't currently receiving a traditional Social Security benefit.

According to data from the SSA, as of December 2024, 87% of traditional Social Security recipients were age 62 and above. This means the index being tasked with measuring price changes from one year to the next is focused on the spending habits of Americans predominantly under the age of 62.

Compared to urban wage earners and clerical workers, retirees spend a notably higher percentage of their monthly budget on shelter expenses and medical care services. Not only does the CPI-W not account for the added importance of these two spending categories for retirees, but the TTM inflation rate for shelter and medical care services, as of September 2025, was modestly higher than the 2.8% COLA beneficiaries are set to receive in 2026.

Things will also be challenging for Social Security's dual enrollees -- those currently receiving a benefit who are enrolled in traditional Medicare.

Earlier this month, the Centers for Medicare and Medicaid Services announced the premiums for Medicare Part A and B in 2026. Although approximately 99% of workers pay no monthly premium for Part A (inpatient hospital services), there is a monthly premium for Part B, which covers outpatient services, such as doctor visits. In 2026, it'll be climbing by a scorching-hot 9.7% to $202.90 per month.

Even with the aforementioned Trump bump, dual enrollees are likely to see some or all of their Social Security raise offset by a higher Part B premium in the upcoming year. This offset tends to be particularly pronounced for lifetime low earners.

It's a disappointing outlook for an otherwise history-filled year.

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