Two big events are on the way for retirees. In mid-October, the Social Security Administration (SSA) will announce its annual cost-of-living adjustment (COLA). Less than a month later, Americans will head to the polls.
The November election won't impact the 2025 Social Security increase. However, it could affect future COLAs. Social Security COLAs could end up higher if Trump is elected -- but there's a big catch for retirees.
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Why Social Security COLAs could jump under Trump
Is there a link between who gets elected president in November and future COLAs? Potentially, yes.
First, it's important to understand how the annual benefits adjustment is calculated. Social Security COLAs are intended to help the purchasing power of benefits keep up with inflation. SSA uses an inflation metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the annual COLA.
Second, the policies implemented by presidential administrations can and sometimes do impact inflation levels. That's where the upcoming election comes into play.
The Wall Street Journal surveyed 50 leading economists about the proposed policies of President Joe Biden and former President Donald Trump. Twenty-eight of them said that Trump's policies would be more likely to cause inflation to rise than Biden's policies would, while just eight had the opposite view. The remainder didn't expect a meaningful difference in how the men's policies would impact inflation.
Their views of the majority align with those of 16 Nobel Prize-winning economists who released a joint letter in June warning that Trump's policies would reignite inflation.
Economists are primarily concerned about the former president's proposals to impose 10% tariffs on all imported products plus tariffs on Chinese imports of between 60% and 100%. Such tariffs would likely lead to higher prices for many goods.
They think that Trump's proposed immigration policies could significantly reduce the number of immigrant workers filling jobs in the U.S. that could otherwise go unfilled. If employers must offer higher wages to attract workers, they will likely pass their higher costs on to customers.
Trump has also indicated he might pressure the Federal Reserve Board to cut interest rates. Economists worry that if the Fed reduces interest rates too much or too prematurely, it could cause inflation to rebound.
The big catch for retirees
The bottom line is that higher inflation would result in higher Social Security COLAs. Many economists think Trump's policies would cause inflation to rise, so future COLAs during a second Trump administration could be higher too.
There's a big catch for retirees when it comes to higher COLAs, though. While those annual adjustments are intended to offset the impact of inflation, they don't always do so fully.
The CPI-W metric used to calculate Social Security COLAs doesn't completely reflect the way living costs change for retirees specifically. This is largely because the basket of goods and services it is based upon doesn't give a high enough weight to categories of costs that have the greatest impact on the budgets of older Americans, such as healthcare costs.
In addition, even if an annual COLA fully offsets the prior year's inflation, it will come after retirees have had to pay those higher prices. Retirees will still feel the sting of inflation regardless of the size of their benefit hikes.
On the other hand...
It's important to note that not every economist thinks Trump's policies will lead to higher inflation levels than Biden's policies would. As noted, 14 of the economists surveyed by The Wall Street Journal believe the two candidates' plans would have roughly the same impact on inflation. Eight believe that inflation would be higher in a second Biden term.
Why did some economists predict higher inflation with Biden? They saw his large spending packages as a more serious inflationary threat than Trump's proposed tariffs and other policies.
Maybe future Social Security COLAs will be higher regardless of which candidate wins in November. Maybe not. But the big catch for retirees will apply if COLAs increase no matter who occupies the White House.
