Last year was filled with history-making moments for America’s leading retirement program, Social Security. In addition to Social Security celebrating its 90th “birthday,” 2025 marked the first time that the average monthly retired-worker benefit exceeded $2,000.
History was made this year, as well, with a fifth consecutive year in which Social Security’s cost-of-living adjustment (COLA) met or surpassed 2.5% — something that hadn’t been witnessed in almost three decades. Social Security’s COLA is essentially the annual raise given to beneficiaries to counter the effects of inflation (rising prices) and prevent a loss of purchasing power.
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Early independent estimates suggest that Social Security’s 2027 COLA will be historically high, thanks in part to decisions made by President Donald Trump. However, a beefier raise comes with potentially devastating consequences for America’s top retirement program.
President Trump delivering remarks. Image source: Official White House Photo by Joyce N. Boghosian.
This may be the fourth-highest COLA in the last 36 years
When the prevailing inflation rate rises, so does Social Security’s cost-of-living adjustment. While a modest level of inflation is normal and healthy for the U.S. economy, two policy decisions by President Trump have provided a boost to inflation, and thus Social Security’s 2027 COLA forecast.
The first modest inflationary bump comes courtesy of the president’s tariff and trade policy. Trump unveiled sweeping global tariffs in early April 2025, along with higher reciprocal tariffs for select countries deemed to have adverse trade imbalances with America. Although the U.S. Supreme Court struck down most of these tariffs in February 2026, Trump used a separate justification to reinstate sweeping global tariffs.
Adding duties to unfinished imported goods can increase production costs for U.S. manufacturers, which are then passed on to consumers. Former Fed Chair Jerome Powell frequently pointed to the price stickiness of Trump’s tariffs in the goods sector as a catalyst for elevated inflation.
But the inflationary surge we’ve observed in recent months traces back to President Trump’s decision to attack Iran on Feb. 28. Shortly after this military operation commenced, Iran closed the Strait of Hormuz to most commercial vessels, effectively halting the flow of 20 million barrels of petroleum liquids per day.
Energy markets reacted swiftly to having 20% of worldwide crude oil demand tied up by the Iran war. Gas prices have soared at the fastest pace in over 30 years, while diesel prices have jumped by an even steeper percentage.
Between February and April, trailing 12-month inflation rose by 140 basis points to 3.8%. Independent estimates for Social Security’s 2027 COLA also jumped dramatically.
After holding its 2027 COLA estimate steady at 2.8% for several months, nonpartisan senior advocacy group The Senior Citizens League increased its prediction to 3.9% following the April inflation report. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson has more than doubled her 2027 COLA forecast over the past couple of months from 1.7% to 4.2% after the April inflation data.
If Johnson’s high-end estimate proves accurate, a 4.2% cost-of-living adjustment to benefits next year would represent the fourth-largest raise since 1991 (5.8% in 2009, 5.9% in 2022, and 8.7% in 2023). In other words, the president’s policies should lead to a sizable “Trump bump” for Social Security beneficiaries in 2027.
Image source: Getty Images.
Trump’s decisions can speed up the timeline to sweeping Social Security benefit cuts
While a beefier Social Security check in 2027 will undoubtedly put a smile on the faces of the program’s more than 70 million traditional beneficiaries, this higher payout comes at a steep cost to the program.
To be crystal clear, Social Security’s financial outlook was shaky long before Donald Trump was elected president. Every year since 1985, the Social Security Board of Trustees has cautioned of a long-term (75-year) unfunded obligation. In plainer terms, projected income in the 75 years after the release of a Trustees Report is estimated to be insufficient to cover outlays (benefits, including annual COLAs, and administrative expenses to operate Social Security).
In 2025, this 75-year funding shortfall was estimated at $25.1 trillion, and it continues to climb.
However, the prevailing concern is the projected asset reserve depletion of the Old-Age and Survivors Insurance trust fund (OASI). The OASI, which is responsible for doling out monthly benefits to retired workers and survivors of deceased workers, won’t go bankrupt or halt payments. But if its asset reserves are exhausted, sweeping benefit cuts estimated at 23% may be necessary by 2033.
The Social Security Board of Trustees rely on modest COLA estimates in their modeling. However, cost-of-living adjustments that come in substantially above the historical average, such as Mary Johnson’s 4.2% forecast for 2027, threaten to drain the OASI’s asset reserves even faster. In short, the bigger the annual raise, the faster the OASI’s asset reserves may deplete.
Furthermore, Trump’s flagship tax and spending law, the “Big, Beautiful Bill,” is doing Social Security no favors. A myriad of temporary tax breaks, including the senior deduction, no tax on tips, and no tax on overtime, will reduce the amount of earned income subject to the payroll tax from 2025 through 2028.
More than 91% of Social Security’s income is collected through the 12.4% payroll tax on earned income. With less earnings applicable to the payroll tax, the Social Security Administration’s Office of the Actuary estimates that Trump’s tax and spending law will cost the program an additional $168.6 billion from 2025 through 2034, as well as move the OASI’s asset reserve exhaustion timeline forward by three months, to the fourth quarter of 2032.
In short, there’s a price to pay for Social Security Trump bumps and tax cuts — and that bill may come due sooner than initially expected.
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Social Security’s 2027 COLA Is on Pace to Be Historic and Devastating, Courtesy of President Donald Trump was originally published by The Motley Fool
