Could tariffs boost or shrink your Social Security COLA?
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As the golden years roll in, many retirees find solace in the stability of their Social Security benefits, a lifeline that helps keep the financial waters calm.
But what happens when the economic seas get choppy, stirred by the winds of political decisions like tariffs?
It's a question that's been on the minds of many, especially in the wake of President Donald Trump's controversial trade policies.
Understanding the COLA Connection
A growing number of retirees are watching the value of their 401(k)s and IRAs steadily decline. Regardless of where you stand on President Donald Trump's aggressive tariff policies, one thing is clear: they're undeniably shaking up the stock market.
Could this trade policy chaos also affect Social Security payments? The surprising answer might be "yes." Here's how President Trump's tariff strategy could influence your upcoming Social Security cost-of-living adjustment (COLA).
How COLA is Calculated
To grasp how tariffs might affect the next Social Security COLA, it's important to first look at how this adjustment is determined. The encouraging part is that the calculation process is straightforward, and the math involved is fairly simple.
For many years after Social Security was first established, any changes to benefit amounts required a direct act from Congress.
Also read: Shocking COLA update: Why half of retirees are rethinking their plans!
That changed in 1975, when an automatic yearly adjustment was introduced to prevent inflation from gradually reducing the value of Social Security payments.
Given that intent, it makes sense that inflation is the primary factor in determining the cost-of-living adjustment (COLA).
While there are different ways to measure inflation, the Social Security Administration (SSA) specifically relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This metric tracks price fluctuations affecting mainly blue-collar urban workers.
The US Bureau of Labor Statistics publishes the CPI-W each month. To calculate the COLA, the SSA looks at the difference between the average CPI-W from the third quarter of the current year and the same quarter from the previous year, rounding to the nearest one-tenth of a percent.
If the CPI-W for Q3 of the current year falls below that of the previous year, no COLA is issued.
Could this happen? The answer is “a definite maybe.”
There's a common misconception that tariffs are paid by the countries targeted. In reality, it’s the importers—US businesses bringing in goods—who must pay these fees to the federal government.
The real question is how those companies respond to the added costs. Some may choose to absorb the expense as part of their operating costs, while others may pass those expenses on to consumers.
When prices on imported items rise, inflation can follow—which may result in a higher COLA than originally anticipated.
Even domestically produced goods can see price hikes due to tariffs. This can occur if those products include imported parts affected by the tariffs or if US companies take advantage of the situation to raise their own prices, knowing that foreign competitors are now more expensive.
Many economists expect inflation to climb if tariffs stay in place, though their projections vary. For instance, Comerica Bank Chief Economist Bill Adams told CNBC that inflation could rise from 2.8% to 4.8%, an increase of 2%.
Meanwhile, EY Chief Economist Gregory Daco offered a more modest estimate to CBS News, predicting a 1% bump that would bring inflation to around 4%.
Source: MSNBC / Youtube.
While a higher COLA might sound beneficial to retirees, these adjustments often fail to fully keep pace with the real-world cost increases experienced by older adults.
Plus, if COLAs rise significantly, they could deplete the Social Security trust funds sooner than anticipated.
A federal court could also rule in favor of a lawsuit arguing that President Trump's tariffs are unconstitutional. Additionally, some economists believe that high tariffs could trigger a recession, which may keep inflation low.
So, retirees shouldn’t assume they’re getting bigger Social Security COLAs just yet. That said, the president’s tariff policies “could very well impact your next COLA.”
Read next: Will your benefits grow in 2026? Here’s the latest COLA update
Have you felt the impact of tariffs on your daily expenses? Are you adjusting your financial plans in anticipation of changes to your Social Security COLA? Share your thoughts and concerns with us in the comments below!
But what happens when the economic seas get choppy, stirred by the winds of political decisions like tariffs?
It's a question that's been on the minds of many, especially in the wake of President Donald Trump's controversial trade policies.
Understanding the COLA Connection
A growing number of retirees are watching the value of their 401(k)s and IRAs steadily decline. Regardless of where you stand on President Donald Trump's aggressive tariff policies, one thing is clear: they're undeniably shaking up the stock market.
Could this trade policy chaos also affect Social Security payments? The surprising answer might be "yes." Here's how President Trump's tariff strategy could influence your upcoming Social Security cost-of-living adjustment (COLA).
President Trump's tariffs are causing stock market volatility which could impact retirees' 401(k) and IRA balances. Image source: WAVY TV 10 / Youtube.
How COLA is Calculated
To grasp how tariffs might affect the next Social Security COLA, it's important to first look at how this adjustment is determined. The encouraging part is that the calculation process is straightforward, and the math involved is fairly simple.
For many years after Social Security was first established, any changes to benefit amounts required a direct act from Congress.
Also read: Shocking COLA update: Why half of retirees are rethinking their plans!
That changed in 1975, when an automatic yearly adjustment was introduced to prevent inflation from gradually reducing the value of Social Security payments.
Given that intent, it makes sense that inflation is the primary factor in determining the cost-of-living adjustment (COLA).
While there are different ways to measure inflation, the Social Security Administration (SSA) specifically relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This metric tracks price fluctuations affecting mainly blue-collar urban workers.
The US Bureau of Labor Statistics publishes the CPI-W each month. To calculate the COLA, the SSA looks at the difference between the average CPI-W from the third quarter of the current year and the same quarter from the previous year, rounding to the nearest one-tenth of a percent.
The Social Security COLA is calculated based on inflation, specifically using the CPI-W, and tariffs have the potential to increase inflation. Image source: WAVY TV 10 / Youtube.
If the CPI-W for Q3 of the current year falls below that of the previous year, no COLA is issued.
How Tariffs Might Affect the Upcoming COLA
President Trump’s tariff policies could influence the next Social Security COLA—but only if they cause a shift in the CPI-W during the third quarter of 2025.Could this happen? The answer is “a definite maybe.”
Higher inflation caused by tariffs could result in a higher Social Security COLA, affecting retirees' benefits. Image source: WAVY 10 TV / Youtube.
There's a common misconception that tariffs are paid by the countries targeted. In reality, it’s the importers—US businesses bringing in goods—who must pay these fees to the federal government.
The real question is how those companies respond to the added costs. Some may choose to absorb the expense as part of their operating costs, while others may pass those expenses on to consumers.
When prices on imported items rise, inflation can follow—which may result in a higher COLA than originally anticipated.
Even domestically produced goods can see price hikes due to tariffs. This can occur if those products include imported parts affected by the tariffs or if US companies take advantage of the situation to raise their own prices, knowing that foreign competitors are now more expensive.
Many economists expect inflation to climb if tariffs stay in place, though their projections vary. For instance, Comerica Bank Chief Economist Bill Adams told CNBC that inflation could rise from 2.8% to 4.8%, an increase of 2%.
Meanwhile, EY Chief Economist Gregory Daco offered a more modest estimate to CBS News, predicting a 1% bump that would bring inflation to around 4%.
Source: MSNBC / Youtube.
While a higher COLA might sound beneficial to retirees, these adjustments often fail to fully keep pace with the real-world cost increases experienced by older adults.
Plus, if COLAs rise significantly, they could deplete the Social Security trust funds sooner than anticipated.
Don’t Jump the Gun Just Yet
There are still several ways inflation might not rise in the third quarter. The president could delay or reduce the tariffs again, as he did last week.A federal court could also rule in favor of a lawsuit arguing that President Trump's tariffs are unconstitutional. Additionally, some economists believe that high tariffs could trigger a recession, which may keep inflation low.
So, retirees shouldn’t assume they’re getting bigger Social Security COLAs just yet. That said, the president’s tariff policies “could very well impact your next COLA.”
Read next: Will your benefits grow in 2026? Here’s the latest COLA update
Have you felt the impact of tariffs on your daily expenses? Are you adjusting your financial plans in anticipation of changes to your Social Security COLA? Share your thoughts and concerns with us in the comments below!
