Recent data shows that U.S. retirees are set to receive a considerably smaller annual Social Security cost-of-living adjustment (COLA) in 2025 compared to this year’s amount. There has been a decline in the annual percentage increase for two years in a row.

This declining trend may persist depending on the results of the upcoming elections. Here’s an insight into why your Social Security COLA in 2026 could be lower if Vice President Kamala Harris secures a victory in November.

Understanding the Connection Between Inflation and Social Security COLAs

Would a potential President Harris have the power to set the Social Security COLA? Not directly, but her economic strategies could significantly impact the annual adjustments. To grasp this, it’s essential to understand the relationship between inflation and COLAs.

The purpose of the COLA is to help maintain the purchasing power of Social Security benefits against inflation. Your annual benefits increase relies entirely on the inflation rate.

Inflation can be measured in various ways. For Social Security COLAs, the key measure is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the price changes for a set of goods and services commonly purchased by urban workers.

Every October, the Social Security Administration (SSA) calculates the upcoming year’s COLA by comparing the average CPI-W for the third quarter with that of the previous year’s third quarter. Any increase (if applicable) is rounded to the nearest tenth of a percent to determine the COLA. If there’s no increase, Social Security benefits are not adjusted.

Predictions from Leading Economists

Both Kamala Harris and her Republican rival, former President Donald Trump, have proposed several significant economic initiatives they promise to enact if elected. Most top economists believe Harris’s proposals would result in lower inflation compared to Trump’s.

The Financial Times and the University of Chicago surveyed nearly 40 prominent economists. When questioned about which presidential nominee’s policies would potentially lead to higher inflation, 70% indicated that Trump’s strategies would be more inflationary. Only 3% thought that Harris’s policies would cause greater inflation.

Moody’s reviewed the economic policies outlined by both Harris and Trump and projected that Trump’s plans could boost inflation by 1.1% in 2025. Conversely, under a Harris administration (even with a GOP-controlled Congress), Moody’s expected inflation to “steadily moderate” and reach 2% by mid-2025.

Why do so many economists consider Harris’s economic plans more favorable for inflation management than Trump’s? The principal reason is Trump’s proposed tariffs.

Trump seeks to impose tariffs ranging from 10% to 20% on all imported goods, with even higher tariffs of 60% on products imported from China. He has also mentioned a potential 100% tariff on goods made in Mexico that are brought into the U.S.

Such tariffs can result in increased inflation as importers pass the higher expenses on to consumers. Additionally, domestic manufacturers might raise prices to leverage the altered competitive environment.

Are Decreased Social Security COLAs Beneficial for Retirees?

If Harris emerges victorious in November, inflation may continue to decline, according to numerous economists’ predictions. However, this would mean lower Social Security COLAs. Is this favorable for retirees?

While some might view a reduced annual COLA negatively, there are two major reasons why lower increases could be beneficial for retirees.

Firstly, COLAs are disbursed only after retirees have already incurred higher costs for various goods and services. It’s crucial to note that Social Security does not account for the time value of money in adjusting the COLA. A scenario with lower inflation and reduced COLAs is more advantageous for your financial situation.

Secondly, the CPI-W metric used to calculate the COLAs does not accurately reflect retirees’ expenses, especially healthcare costs, which are not weighted as heavily as they should be in the index.

Uncertainties Remain

Is it certain that retirees will see lower COLAs if Harris becomes president? Not necessarily, as economists’ predictions can be incorrect.

A bigger consideration is that unexpected events can occur that drive inflation (and COLAs) higher, regardless of the presidential election outcome. Factors such as soaring oil prices due to Middle East conflicts, union strikes disrupting supply chains, or another pandemic causing global inflation similar to the aftermath of COVID-19 are possible.

These issues have historically caused higher inflation and increased Social Security COLAs, and they may occur again regardless of whether Harris or Trump wins the upcoming election.

Keith Speights holds no positions in any stocks mentioned.

The Motley Fool holds positions in and endorses Moody’s stock. They have an established disclosure policy.

The Motley Fool is a content partner of YSL News, delivering financial insights, analyses, and commentary aimed at empowering individuals to take charge of their financial future. Their content is crafted independently of YSL News.

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