It’s been a history-packed past year and change for America’s leading retirement program. In August, Social Security celebrated its 90th anniversary since its inception, while the average retired-worker benefit surpassed $2,000 for the first time in the program’s storied history in May 2025.
History was also made on the cost-of-living adjustment (COLA) front this year. Social Security’s COLA is the annual raise designed to offset the effects of inflation and ensure beneficiaries don’t lose buying power. The 2.8% increase in benefits in 2026 marks the fifth straight year that payouts have risen by at least 2.5%. That hasn’t happened in roughly three decades.
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Next year is shaping up as another historic one for Social Security and its beneficiaries — for both good and bad reasons. On the one hand, a decision made by President Donald Trump may produce the fourth-largest COLA in 36 years. At the same time, this decision could have dire consequences for Social Security’s financial outlook.
President Donald Trump delivering remarks. Image source: Official White House Photo.
A historic “Trump bump” can launch Social Security benefits higher in 2027
The previously mentioned 2.8% cost-of-living adjustment passed along this year was affected by President Trump’s policies. While a modest level of inflation (rising prices) is normal and healthy for the U.S. economy, one decision by the president further increased the COLA received by beneficiaries in 2026.
In April 2025, Trump unveiled sweeping global tariffs, as well as higher reciprocal tariffs on countries deemed to have adverse trade imbalances with America. Although the U.S. Supreme Court invalidated many of these tariffs in February 2026, the added duties on select imported goods increased the U.S. inflation rate and modestly boosted Social Security’s 2026 COLA.
For a second consecutive year, one of the president’s policies is providing Social Security’s COLA with a “Trump bump.”
On Feb. 28, Trump gave the green light for the U.S. military to attack Iran. Shortly thereafter, Iran shut down the Strait of Hormuz to commercial vessels, effectively halting the daily transport of 20 million barrels of petroleum liquids (about 20% of global demand).
Removing a fifth of the world’s crude oil supply sent fuel prices soaring — and the trailing 12-month (TTM) inflation rate followed suit. Between February and May, TTM inflation jumped from 2.4% to 4.2%.
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As the U.S. inflation rate has gathered steam, so have independent estimates for Social Security’s 2027 COLA. Nonpartisan senior advocacy group, The Senior Citizens League, is forecasting a 3.8% raise for the upcoming year. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson projects Social Security benefits will climb by 4.7% in 2027. For context, Johnson had Social Security’s 2027 raise pegged at just 1.7% in February.
If Johnson’s prognostication proves accurate, a 4.7% boost to payouts would be the fourth largest since 1991, surpassed only by raises of 5.8% in 2009, 5.9% in 2022, and 8.7% in 2023.
This historic Trump bump would increase the average monthly retired-worker check by almost $98.
Image source: Getty Images.
An outsize cost-of-living adjustment has consequences for Social Security
While a considerably beefier Social Security payout in 2027, courtesy of President Trump’s decision to attack Iran, might sound favorable to some beneficiaries, there’s a steep price to pay for an outsize COLA.
Recently, the Social Security Board of Trustees released its 86th annual report on the state of America’s leading retirement program. In addition to detailing how Social Security collects income and where these dollars are spent, the annual Trustees Report provides a long-term (75-year) financial outlook for the program.
Over the next 75 years, the Trustees foresee an unfunded obligation totaling $29.3 trillion. It’s important to note that Social Security isn’t in danger of bankruptcy or halting benefits. However, the continuity of the existing payout schedule, including annual COLAs, is very much at stake.
The more pressing issue for Social Security is the projected exhaustion of the asset reserves for the Old-Age and Survivors Insurance trust fund (OASI). This is the fund responsible for doling out monthly benefits to retired workers and survivors of deceased workers.
If the OASI’s asset reserves are depleted, a projected 22% benefit cut awaits. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.
In the 2026 Trustees Report, the OASI’s asset reserve depletion timeline was accelerated to the fourth quarter of 2032. Once again, there’s no concern about bankruptcy. However, if the OASI’s asset reserves are exhausted, sweeping benefit cuts of up to 22% may await.
When the Trustees model these projections, they’re based on modest annual cost-of-living adjustments. If Johnson’s forecast of a 4.7% COLA comes to fruition, it’ll result in far more capital than expected flowing out of the OASI’s asset reserves in 2027. In other words, Social Security’s historic Trump bump could further accelerate the timeline to sweeping benefit cuts.
A second consecutive year with a Trump bump can yield a terrifying result for America’s top retirement program.
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Social Security’s 2027 COLA Is on Pace for a Historic “Trump Bump” — but It Comes With Unintended Consequences was originally published by The Motley Fool
