Social Security COLA conundrum
“The 2026 COLA is likely to be 2.7%, according to a recent projection by The Senior Citizens League. That’s a notch above this year’s COLA of 2.5%, which bumped up the average monthly benefit by roughly $50 for retired workers, and applies to more than 70 million retired senior citizens and disabled workers.”
But does this capture the lived experience of retirees living with Trump tariffs?
“The Nationwide data found that 3 in 10 retirees are already relying more heavily on their savings or retirement accounts, and nearly 1 in 5 say it has become more difficult to access or manage their benefits this year.
“You could make the case that tariffs are likely to drive up inflation more than Social Security COLA actually rises or can cover,” said Mary Johnson, a Social Security expert.
“Food costs are likely to continue to climb due to several issues other than tariffs, too, including weather, geopolitical disasters, and lack of farm workers,” she added. “And there is a wild card: There are staff changes at the Bureau of Labor Statistics that could potentially affect the accuracy of consumer data.”
Social Security and Trump tariffs
But does this capture the lived experience of retirees living with Trump tariffs?
“The Nationwide data found that 3 in 10 retirees are already relying more heavily on their savings or retirement accounts, and nearly 1 in 5 say it has become more difficult to access or manage their benefits this year.
“You could make the case that tariffs are likely to drive up inflation more than Social Security COLA actually rises or can cover,” said Mary Johnson, a Social Security expert.
“Food costs are likely to continue to climb due to several issues other than tariffs, too, including weather, geopolitical disasters, and lack of farm workers,” she added. “And there is a wild card: There are staff changes at the Bureau of Labor Statistics that could potentially affect the accuracy of consumer data.”
Social Security and Trump tariffs
Hard to understand what Mary Johnson means with her remarks about COLA and tariffs at least from the linked article. COLA is not an anticipatory adjustment. Whatever impact tariffs had in July – September 2025 will be in the number for 2026 and similarly 12 months later for 2027 COLA. It is also interesting to see a group of expenses highlighted as above the anticipated COLA that seem not to be very exposed to tariffs. Not going to say totally apart from tariffs, but if the real “bad guys” for SS beneficiaries are the ones highlighted then pitching COLA insufficiency in terms of tariffs seems a little odd.
@Eric,
You might want to start reading the news first before commenting. Those of us paying attention know (a) Trump raises and lowers tariffs at whim on a weekly basis and (b) the link doesn’t cover every single tariffed item that can directly or indirectly affect consumers.
Joel:
Thank you for saving me the effort.
Joel:
“whim” is a good word to describe what he is doing. I think he sets it, changes his mind, and resets it. He also gets lost in what he does and “probably” does not write things down. By the way, Trump imposed a 39% tariff on Switzerland.
If you link through to the poll, I think you might conclude that it is a push poll by an insurance company, Nationwide, looking for talking points for their sales pitch. If 3 in 10 are relying more heavily on savings, then 7 in 10 are not.
Trying to interpret aggregate data is problematic. My next door neighbor is at a nursing home for rehabilitation. I imagine she would be one of the 3 out of 10, but most years would have been one of the 7. 5 doors down they are getting a new furnace; another big ticket item that would change which category this year’s response would fall into.
Most respondents incorrectly said “Social Security is not protected against inflation.” That lack of understanding is good for the financial planner salesperson, but not so good for any hope of getting any legislation before 2033.
@Arne,
The ignorance of the average American voter is a reliable, sustainable and inflation-resistant commodity.
While SS may be “protected against inflation,” it will be protected against last year’s inflation.
That said, the average Social Security retirement benefit in February 2024 was about $22,344 per year. Protected or not, it’s not enough money, but for most retirees, that’s most or all they’ve got. That’s what I consider “problematic.” YMMV.
Yes. The COLA is inherently lagging. The 2023 COLA was 8.7 percent. Actual inflation in 2023 was much lower. Did Nationwide salespeople modify their talking points that year? Nationwide only has retirement savings vehicles to sell to people who do have more that just SS.
FDR’s concept for SS assumed that it would be not be the only source of funds for most people in retirement. Sadly, it did not work out that way. As you say, for most retirees SS is most or all of what they have. Nonetheless, it has been remarkably successful and retaining the “for retirees, by retirees” even after we pass through 2033 would be the best way to keep it successful.
@Arne,
Agree. I’m on SS. My wife will be in 13 months. We don’t “need” it but are glad to have it. Who knows, in the future, we may “need” it. SS is insurance.
Joel/Bill, I still do not see that tariffs present any particular problem for SS COLA. For as long as I remember there have been disagreements on what should be included in the goods and services used and the specific methodology of calculating. Tariffs don’t seem to present any novel problems with either of these. As a cost it is expected to be reflected in prices, but energy, labor and other cost inputs do also. The tariff policy of the administration could be really bad, but that doesn’t suggest that the SS COLA is going to have any serious novel problems as a result. Your critique of my comment seems rooted more in an idea that COLA may systematically undercompensate beneficiaries, rather than tariff-related price changes somehow can’t be handled by the existing COLA mechanism. Tariffs might be dumb and the SS COLA might be poor, but the later isn’t poor because the former is dumb.
@Eric,
The tariff policy of the administration is really bad, and that suggests that the SS COLA is going to have serious problems as a result, since SS COLA corrections don’t occur until the year after the tariffs are implemented.
If you can’t understand how tariffs inflate the cost of living, then I can’t help you. But if you don’t understand that, then you shouldn’t post comments, since it only calls attention to your ignorance.