The Trump administration is implementing new tariff policies in 2025. The exact details are still unclear. However, many experts believe that tariffs will drive consumer prices upward.
If that’s the case, inflation could reverse course during the second half of 2025. A huge uptick during the year’s third quarter, in particular, could lead to a much larger Social Security cost-of-living adjustment (COLA) than the 2.3% currently predicted. But is that a good thing?
Not really. The problem with Social Security COLAs is that generous ones come at the cost of higher price increases. So all told, beneficiaries really can’t win.
The best they can generally hope for is a break-even scenario, where their COLAs allow them to maintain buying power yearly. The Senior Citizens League warns that tariffs can potentially drive drug prices upward for seniors. As it is, many retirees have a hard time affording their medication.
Import taxes could impact hundreds of drug products from trade partners. Plus, tariffs could easily drive up the cost of food, whether by making imports more expensive or forcing more domestic production at a higher price tag. So either way, seniors on Social Security must brace for what’s to come.
When possible, they should find ways to boost their income outside of any COLA that comes their way.
Tariffs and Social Security COLA impacts
That could mean working part-time or joining the gig economy for extra cash.
Of course, it’s too soon to predict exactly how tariffs will affect the economy. It’s also too soon to predict what 2026’s Social Security COLA will look like. However, retirees should know that while next year’s COLA might end up higher than expected, that outcome won’t necessarily be one to celebrate.
The new tariffs could also lead to increased unemployment, which could strain the Social Security Trust Fund. Social Security is primarily funded through payroll taxes, with employers and employees each contributing 6.2% of a worker’s pay, totaling 12.4%.
If you’re self-employed, you’re responsible for the entire amount. Recessions typically come with higher unemployment because businesses tend to lay off workers and cut back on hiring to account for reduced demand. If this happens, the number of people paying into the Social Security system will decrease. Yet, the number of people receiving benefits remains relatively the same (or even increases if people are forced to claim benefits earlier than expected).
The imbalance between money coming in and money going out could strain a system that already has long-term funding problems. To counter this point, there is one potential positive. If the tariffs create more domestic manufacturing (as intended), it could mean more jobs and more people paying into the trust fund.
While it’s uncertain if the new tariffs will lead to this outcome, if it does, the additional payroll revenue could help alleviate some of the strain the system is facing. As it stands, there aren’t many short-term positives to pull from the new tariffs regarding Social Security. However, increased domestic manufacturing and employment could be one long-term silver lining.
Retirees should stay informed about how the tariffs may impact their finances and take steps to prepare.
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