For the nearly 55 million retired workers who receive a monthly Social Security benefit, there are few, if any, annual announcements more anticipated than the program’s cost-of-living adjustment (COLA).
Social Security’s COLA is effectively a “raise” given to beneficiaries that’s designed to offset the effects of inflation and ensure that Social Security income doesn’t lose buying power over time. Hypothetically, if a large basket of goods and services regularly purchased by retirees were to increase in cost by 3% from the previous year, Social Security payouts would need to climb by a commensurate amount; otherwise, retirees wouldn’t be able to purchase the same amount of those goods and services the following year.
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Social Security’s 2027 COLA is shaping up to be a mixed bag. On the one hand, President Donald Trump’s policies are likely to supercharge next year’s raise — and who doesn’t like a beefier monthly payout? However, this Trump bump-driven 2027 COLA comes with a serious unintended consequence that may be detrimental to existing and future beneficiaries.
Social Security’s 2027 COLA is a mixed bag, courtesy of President Trump. Image source: Official White House Photo by Joyce N. Boghosian.
Donald Trump’s policies can lead to an outsize Social Security raise in 2027
Social Security’s annual cost-of-living adjustment closely reflects the prevailing inflation rate. While a modest level of inflation is expected in a growing economy, two of President Trump’s policies — tariffs and the Iran war — are directly boosting the inflation rate.
In April 2025, Trump unveiled his self-proclaimed Liberation Day tariffs, which imposed sweeping global tariffs and higher reciprocal tariffs on dozens of countries that had unfavorable trade imbalances with America. Even though the U.S. Supreme Court struck down many of these tariffs in February 2026, the upward lift they provided on consumer prices led to a modest Trump bump for Social Security’s 2026 COLA.
The same effect should be expected for next year’s raise. Despite the Supreme Court invalidating Trump’s Liberation Day tariffs, the president and his administration have used new justifications to impose sweeping global tariffs. Adding duties to select imported goods can increase domestic production costs and lift consumer prices.
The Trump-led Iran war is also directly affecting prices. Shortly after the president approved military operations against Iran in late February, the latter shut down the Strait of Hormuz to virtually all maritime traffic. This halted the movement of a fifth of the world’s petroleum liquids, sending fuel prices soaring.
But the inflationary effects of the Iran war aren’t confined to the energy sector. The price stickiness of Core Personal Consumption Expenditures suggests that Trumpflation (inflation driven by Donald Trump’s policies) has reached the broader economy.
Accounting for the inflationary effects of the president’s policies, The Senior Citizens League, a nonpartisan senior advocacy group, expects next year’s COLA to reach 3.6%. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson predicts that Social Security’s 2027 raise will clock in at 3.4%.
To put the average of these two estimates into perspective, a 3.5% Social Security raise in 2027 would be a tie for the seventh-largest percentage increase over the last 35 years. It would also secure a sixth consecutive year in which benefits rose by at least 2.5% — a feat that hasn’t been observed in 30 years.
Image source: Getty Images.
Annual Trump bumps are digging a bigger hole for Social Security
However, outsize Social Security raises come with potentially serious consequences for America’s leading retirement program.
Since 1940, the Social Security Board of Trustees has published an annual report detailing the program’s financial health. It allows anyone to see how Social Security generates income and track where those dollars are spent.
But what’s arguably most valuable about the annual Trustees Report is the forward-looking projections. The Trustees account for a laundry list of variables when forecasting the program’s long-term (75-year) solvency. Since 1985, every annual report has warned of a long-term unfunded obligation. In the 2026 Trustees Report, this unfunded obligation ballooned to $29.3 trillion.
However, the more immediate concern is the projected depletion of the Old-Age and Survivors Insurance trust fund’s (OASI) asset reserves by the fourth quarter of 2032. The OASI is responsible for paying monthly benefits to retired workers and survivor beneficiaries.
The good news is that the OASI doesn’t need a dime in its asset reserves — the excess income collected since inception that’s invested in special-issue, interest-bearing, government bonds, as required by law — to continue paying benefits. The 12.4% payroll tax on earned income generates the lion’s share of the income Social Security collects. As long as Americans keep working and paying their taxes, Social Security, as it’s currently designed, can never go bankrupt.
US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts
But the sustainability of the program’s existing monthly payout schedule, including COLAs, is very much at risk. If the OASI’s asset reserves are exhausted by the fourth quarter of 2032, the Trustees estimate that sweeping benefit cuts of up to 22% may be necessary.
When the Trustees model their short- and long-term estimates, they do so using modest annual COLAs. The Trump bump-estimated 3.5% COLA in 2027 is anything but modest. While outsize raises may look great in beneficiaries’ checking and savings accounts, these well-above-average COLAs can drain the OASI’s coffers faster than initially expected.
To be clear, several ongoing demographic changes are almost entirely to blame for Social Security’s financial shortcomings. Factors such as the retirement of baby boomers, increased longevity, rising income inequality, lower net legal migration into the U.S., and historically low birth rates have dug this hole for Social Security.
Nevertheless, Trump’s policies aren’t helping. If Social Security’s 2027 COLA is as robust as independent estimates suggest, the OASI’s projected timeline to sweeping benefit cuts may accelerate, yet again!
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Social Security’s Supercharged, Trump Bump-Driven 2027 COLA May Hasten the Timeline to Sweeping Benefit Cuts was originally published by The Motley Fool
