In April, more than 54 million retired workers brought home an average monthly Social Security benefit of approximately $2,081. Though this is a relatively modest sum, Social Security income plays a vital role in helping up to 90% of retirees cover their expenses.
For Social Security beneficiaries, few announcements (if any) hold more weight than the annual cost-of-living adjustment (COLA) reveal in October. Social Security’s COLA is effectively a raise passed on to recipients that’s designed to offset inflation (rising prices) and keep beneficiaries from losing buying power.
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Based on independent estimates, Social Security’s 2027 COLA is on track to be historic — one of the largest raises over the last 36 years. But this projected cost-of-living adjustment, which is being fueled by Trumpflation, comes at a potentially steep cost to America’s leading retirement program.
President Trump delivering a speech to Congress. Image source: Official White House Photo.
Trumpflation may yield the fourth-largest Social Security COLA since 1992
Although President Donald Trump’s tariff and trade policy continues to impact prices within the goods sector, the lion’s share of America’s recent inflationary surge can be traced to the Iran war.
Shortly after Trump gave the order for the U.S. military to attack Iran on Feb. 28, the latter essentially closed the Strait of Hormuz to commercial vessels. In doing so, Iran halted the daily flow of approximately 20 million barrels of petroleum liquids, sending fuel prices soaring. Gas prices rose at the fastest pace in over three decades, while diesel prices jumped at an even steeper percentage.
Even if the Iran war ends fairly soon, the staggered effects of the largest energy supply disruption in modern history will continue to be felt for several quarters. As businesses contend with rising transportation and production costs and inflation spills into the broader economy (i.e., beyond the energy industry), prices can rise further.
This Trump-driven price surge (“Trumpflation”) has boosted trailing 12-month inflation from a modest 2.4% in February to 4.2% in May. It’s also rapidly increased independent estimates for Social Security’s 2027 COLA.
Nonpartisan senior advocacy group The Senior Citizens League edged its 2027 COLA projection lower to 3.8% from 3.9% after the May inflation report was released. However, its 3.8% forecast is up from 2.8% following the February and March inflation reports.
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The high-water mark comes from independent Social Security and Medicare policy analyst Mary Johnson, who now sees Social Security checks soaring by 4.7% in 2027. For context, Johnson’s COLA forecast was just 1.7% a few months ago. A 4.7% COLA would be the fourth-largest percentage raise for Social Security benefits since 1992, exceeded only by increases of 5.8% in 2009, 5.9% in 2022, and 8.7% in 2023.
If Johnson’s estimate hits the nail on the head, the average retired-worker beneficiary would see their monthly payout climb by roughly $98 in 2027. Meanwhile, the typical worker with disabilities and survivor beneficiary would receive “Trump bumps” equivalent to $77/month and $76/month next year, respectively.
Image source: Getty Images.
A larger Social Security benefit can expedite the timeline to sweeping benefit cuts
While it’s fair to say that nearly every Social Security beneficiary dreams of a nominally larger payout each year, there’s a steep price to pay for progressively larger cost-of-living adjustments.
Earlier this month, the Social Security Board of Trustees published its annual report detailing the program’s financial health. Social Security’s projected long-term (75-year) funding shortfall ballooned to $29.3 trillion in the latest report from an estimated $25.1 trillion last year.
But what’s more worrisome is the projected asset reserve depletion of the Old-Age and Survivors Insurance trust fund (OASI), which pays monthly benefits to 54.3 million retired workers and 5.8 million survivors of deceased workers. While the OASI is in no danger of bankruptcy, insolvency, or halting payouts, the sustainability of the existing benefit schedule, including annual COLAs, is very much in question.
If the OASI depletes its asset reserves by the fourth quarter of 2032, as currently forecast, retired workers and survivors could see their benefits slashed by up to 22%!
Several of President Trump’s decisions may worsen Social Security’s financial outlook and accelerate this timeline to sweeping benefit cuts.
For example, the annual Trustees Report relies on modest forward-looking COLA projections. If next year’s Trump bump clocks in at 4.7% (or higher), it threatens to drain the OASI’s asset reserves even faster.
Furthermore, the president’s flagship tax and spending law, the “Big, Beautiful Bill,” introduced several temporary tax breaks from 2025 through 2028 that are expected to adversely impact Social Security. While the senior deduction, no tax on tips, and no tax on overtime provisions enable some Americans to retain more of their income, it shrinks the pool of earned income (wages and salaries, but not investment income) subject to the 12.4% payroll tax. The payroll tax is Social Security’s primary funding source, accounting for more than 91% of its income in 2025.
According to a projection from the Social Security Administration’s Office of the Actuary (OACT), Trump’s tax and spending law will increase program costs by $168.6 billion from tax years 2025 through 2034. The OACT also estimated that the Big, Beautiful Bill would shorten the timeline to the OASI’s asset reserve depletion by three months.
While a larger monthly benefit probably sounds great on paper, it comes with serious consequences for Social Security’s financial health.
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Social Security’s 2027 COLA Is on Track to Be Historic Due to Trumpflation — but There’s a Steep Price to Pay for a Larger Benefit was originally published by The Motley Fool
