MW Social Security's COLA seen lower in 2026 as market turmoil leaves seniors in limbo

By Jessica Hall

The cost-of-living adjustment for 2026 would be below the 20-year average and the 2025 figure

Social Security's cost-of-living adjustment for 2026 is expected to be below this year's level, analysts said Thursday, due to tamer inflationary pressures - yet recent market turmoil and the Trump administration's tariffs could force seniors to scramble to cover basic necessities.

The Senior Citizens League, an advocacy group for older adults, expects the 2026 COLA to be 2.3%, while independent Social Security and Medicare analyst Mary Johnson expects the COLA to be 2.2%. Both forecasts are below the 2025 COLA of 2.5% and the average COLA over the past 20 years of 2.6%.

The official announcement of 2026's COLA is due in October and will be based on the U.S. consumer-price index for July, August and September, so these forecasts are preliminary and may change.

Consumer prices fell in March for the first time since the outbreak of the COVID-19 pandemic in 2020. The consumer-price index declined 0.1% last month amid lower oil prices, according to the Bureau of Labor Statistics; it was the first such drop since May 2020. The 12-month increase in consumer prices also slowed to 2.4%, from 2.8%.

The Social Security COLA is calculated based on the consumer-price index for urban workers (CPI-W), which more heavily weighs costs for transportation, food, apparel and other expenses that would be bought by urban nonretirees.

The updated forecast for COLA - which is not a raise, but a benefit adjustment to keep pace with inflation - and concerns about Social Security's solvency comes as the Social Security Administration itself is in the midst of a broad restructuring and customer-service chaos amid shifting policies and website crashes.

The stock market has whipsawed over the past week amid fears of a massive international trade war and tariff uncertainty. President Trump on Wednesday paused most "reciprocal" tariffs for 90 days, meaning most countries are now hit with tariff rates of 10%, while China will face a new, higher tariff rate of 145%.

"While most of the tariffs were temporarily paused, a trade war with China or higher tariffs with other trading partners would cause higher inflation. That could push COLAs higher as well," Johnson said. "Higher sticky consumer prices, home repairs [and] changes in health are forcing older consumers to spend more from savings at a faster rate, at the same time extreme stock-market volatility pummels the value of retirement-account holdings."

A tariff war could drive increased inflation, which could lead to a higher COLA but also more financial pressure on older adults to afford essentials such as eggs, the Senior Citizens League said.

"Placing broad-based tariffs on goods from numerous countries could have a profoundly negative impact on the daily lives of seniors, including the costs of drugs and medical equipment that many seniors rely on. It is also highly likely that import taxes will keep food prices high, increase auto-insurance costs and contribute to higher inflation, among other effects," said Shannon Benton, the executive director of the Senior Citizens League.

The advocacy group called on Trump to provide exemptions on critical products for seniors. If the administration does unpause the tariffs, exceptions for drugs, medical equipment and essential food items could soften the economic impact on seniors.

The recent stock-market gyrations also likely disrupted seniors' retirement-account balances, which can lead to hesitancy to make purchases, Johnson said. The S&P 500 SPX was down more than 5% on Thursday, after surging the previous day when Trump paused most of the tariffs.

"Market convulsions like what we are seeing now can spook consumers, causing them to put off discretionary purchases, especially bigger ones. This could mean slower economic growth or even a recession," Johnson said.

If the U.S. economy were to slide into a recession, that could impact Social Security's funding and potential insolvency date, Johnson added. The trust funds that back Social Security are expected to be insolvent by 2035, at which point beneficiaries will receive only 83% of promised benefits.

Another factor that could impact the solvency date is potential tax cuts, such as the ending of taxation on Social Security benefits - an issue on which Trump campaigned. While the idea of ending taxes on Social Security has been popular with older adults, the potential move could reduce the amount of money that Social Security and Medicare needs to fund the benefits of today's retirees, Johnson said.

"Alternate streams of revenue would be required for both programs, or benefit cuts and substantially higher healthcare costs could follow that far outweigh the tax benefit," Johnson said.

Unless the revenue from the taxation of Social Security benefits was replaced, Social Security would become insolvent sooner than currently forecast per a recent Congressional Budget Office forecast, Johnson noted.

-Jessica Hall

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 10, 2025 12:36 ET (16:36 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.