Social Security recipients rely on cost-of-living adjustments (COLAs) to keep pace with rising prices. Without these annual increases, benefits would lag behind inflation and gradually lose purchasing power, effectively reducing the financial support retirees receive each year.
The Social Security Administration has yet to calculate the COLA for 2026, a process that will take several months. The Congressional Budget Office (CBO) anticipates a 2.4% increase in benefits for the following year, marking the smallest raise for retirees since 2021. This forecast was published before former President Trump assumed office.
Since then, retirees have faced challenging news from Washington. Early in April, the Trump administration enacted the largest tariff hike in history. Although the full impact of this significant trade policy shift remains uncertain, many economists predict an increase in inflation, suggesting that the 2026 COLA could surpass current expectations.
While a larger COLA might seem beneficial, it could have adverse effects for retirees. An increased COLA may lead to the Social Security Trust Fund being depleted sooner than expected, providing lawmakers with less time to prevent major benefit reductions.
The Social Security Administration calculates COLAs using a subset of the Consumer Price Index known as the CPI-W. This calculation involves dividing the third quarter CPI-W of the current year by that of the previous year, with the percentage increase determining the next year’s COLA. For instance, a 2.5% increase in the third quarter of 2024 resulted in a 2.5% benefits rise in 2025. The Administration cannot finalize the 2026 COLA until the third-quarter CPI-W data becomes available in October 2025.
Predicting future inflation is challenging due to the uncertain U.S. trade policies. President Trump has repeatedly adjusted tariffs or delayed their implementation, including a recent 90-day pause on significant reciprocal tariffs. Despite this, economists surveyed by The Wall Street Journal expect CPI inflation to gradually rise to 3.5% by December 2025, an increase from 2.4% in March 2025. Though CPI and CPI-W differ, these tariffs likely affect both metrics similarly. Consequently, with a 2.2% CPI-W inflation in March 2025, this figure might reach 3.3% by December 2025, suggesting a potential 2026 COLA around 3%.
The CBO projects that the Social Security Trust Fund, responsible for disbursing benefits, will be depleted by fiscal 2034 due to program deficits, where benefit costs exceed revenues. If the trust fund depletes, benefits will not cease but reduce unless Congress addresses the financial shortfall. Without the trust fund’s interest revenue, remaining tax income would cover only 77% of scheduled benefits, resulting in a 23% cut by 2035.
The current estimate assumes a 2.4% COLA in 2026, but with expected inflation increases due to tariffs, a larger COLA is probable. This increase would elevate Social Security costs beyond estimates, potentially depleting the trust fund before 2034. This scenario would shorten the timeframe for Congress to act, posing challenges for retired workers and other beneficiaries.
