President Donald Trump has made headlines for a lot of reasons since he took office on Jan. 20, 2025. One of those reasons is the tariffs he has proposed, some of which are already in place.
Some are worried that these tariffs could increase their living expenses today. But they could also have far-reaching consequences, especially for retirees. Here are two such consequences you may need to prepare yourself for.
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1. Higher cost of living
If tariffs drive up costs, seniors may be forced to make larger withdrawals from their retirement savings than they expected to. This could be problematic, particularly for those who are already concerned about running out of money before they retire.
Larger retirement account withdrawals could also result in a larger tax bill if the money comes out of tax-deferred accounts like traditional IRAs and 401(k)s. You fund these accounts with pretax dollars, so you must pay taxes on your withdrawals when you take money out. This isn't the case for Roth accounts, which you fund with after-tax dollars.
2. Higher Social Security cost-of-living adjustments (COLAs)
When inflation is up, Social Security cost-of-living adjustments (COLAs) go up as well. On the surface, that sounds like a good thing. But there are two hidden costs associated with bigger COLAs.
The first is that larger COLAs could put you in danger of owing Social Security benefit taxes or owing more benefit taxes than you're already paying. This could result in you keeping less of your benefits than you expected because you may have to give a portion back to the federal government.
Larger COLAs also increase how much the Social Security Administration has to pay out over time. This is a problem because Social Security is already less than a decade away from insolvency. The faster average benefits rise, the sooner the program will run out of money to pay all scheduled benefits.
This doesn't mean the whole program will go away, though. Benefit cuts could happen, but it's more likely that Washington will reform the program to keep it going. However, the shorter the time to the insolvency date, the fewer options Congress has. This could result in unpopular reforms, like raising the full retirement age (FRA), to make up the funding shortfall.
What retirees can do
Most of President Trump's tariffs haven't been in effect long enough for us to know their long-term ramifications. So we definitely have to wait to see how things play out.
If you're worried about the tariffs upending your retirement budget, you may want to be a little more conservative with your retirement account withdrawal rate. You may also want to consult with an accountant to see if you could be at risk of owing income taxes on your Social Security benefits, so you can plan accordingly. These taxes become more common every year as average check amounts rise, so you could owe them this year even if you haven't before.
You'll also want to take another look at your retirement withdrawal strategy once the government has settled on its Social Security reforms. Any changes to Social Security could affect how much money you have left after taxes or withheld amounts and how much you'll need to get from other sources. You may need to adjust your budget to stretch your dollars further.
