Tariffs have once again taken center stage in the economic headlines, with governments around the world, especially in the U.S., revisiting this long-standing trade tool. But for many nearing retirement or currently retired, the topic raises questions: What are tariffs and how do they work? What’s the impact of tariffs on my retirement portfolio or the cost of living? And most importantly, how can I prepare for the financial ripple effects?
In this blog, we’ll walk through what tariffs are, how tariffs work, and how they impact you — particularly if you’re planning retirement or already enjoying your post-career life.
What Are Tariffs?
Simply put, a tariff is a tax imposed by a government on imported goods. It’s one of the oldest tools in international trade, and it serves several purposes:
- Protect domestic industries by making imported goods more expensive than those made locally
- Generate government revenue
- Influence international trade negotiations
Whether you’ve asked “what are tariffs” or wondered how they fit into current economic strategies, tariffs essentially shift the pricing dynamic. When goods from overseas become more expensive due to tariffs, the idea is that consumers and businesses will turn to domestic alternatives.
How Do Tariffs Work?
Who Sets the Tariffs?
In the United States, Congress and the President can both impose tariffs, depending on the situation. Other countries operate similarly, using tariffs as a policy lever to influence trade or support local businesses.
How Are They Applied?
When imported goods arrive at a border, a tariff is assessed — a tax paid by the importer. This additional cost often gets passed down to consumers through higher prices.
For example, if a U.S. company imports electronics from Asia and a tariff is imposed, that added cost might increase the final sale price in American stores.
This basic concept is central to understanding how tariffs work, and why they matter even to those who don’t directly trade in global markets.
The Impact of Tariffs on Consumers and Retirees
Once you have a basic understanding of what tariffs are and how they work, the natural question becomes: How does this affect me?
The impact of tariffs is widespread:
- Higher consumer prices – Tariffs lead to more expensive imports. Again, the cost is typically passed to consumers in the form of higher prices on everyday goods.
- Tariffs and inflation – Sustained or widespread tariffs can add to inflation, something retirees feel acutely on a fixed income.
- Stock market volatility – Tariff announcements and trade negotiations can rattle the stock market. This creates uncertainty, which is a risk for anyone relying on investment income.
- Trade war effects – In trade disputes, such as the US-China trade war, tit-for-tat tariffs disrupt supply chains, impact corporate earnings, and cause market swings.
In short, while tariffs may be designed to protect or strengthen certain industries, they often create economic turbulence. For retirees or those nearing retirement, this turbulence can influence financial planning in retirement and strain retirement income strategies.
A Brief Look at the US-China Trade War
The most well-known recent example of a major tariff-related trade event was the US-China trade war of 2018-2019. Both nations imposed escalating tariffs on hundreds of billions of dollars’ worth of goods. Key impacts included:
- Higher costs for goods like electronics, furniture, and clothing
- Disruptions in supply chains
- Retaliatory tariffs from China on U.S. goods like soybeans and automobiles
- Increased market volatility
We’re seeing echoes of this scenario in 2025, with new tariff proposals and trade negotiations taking shape. Retirees and pre-retirees are right to pay attention.
Tariffs and Inflation – A Dangerous Mix for Retirees
Retirees often live on a combination of fixed income sources such as Social Security, pensions, and investment withdrawals. When tariffs contribute to higher inflation, the purchasing power of that income erodes.
The good news? There are ways to plan around it.
Financial Planning in Retirement: Preparing for Tariff-Driven Uncertainty
Tariffs may be out of your control, but your retirement planning doesn’t have to be. We utilize a strategy called the Peace of Mind Pathway, which is designed to insulate retirees from economic stressors like trade wars and inflation.
Step 1: The Peace of Mind Roadmap
This comprehensive retirement-focused financial plan stress-tests your income strategy. What happens if inflation spikes? What happens if your cost of living rises? This roadmap covers:
- Retirement budgeting
- Income projections
- Tax planning
- Healthcare costs
- Estate planning
Step 2: Implement the Plan
Once the plan is built, we implement investment strategies that align with your goals and risk tolerance.
Step 3: Nurture and Adjust
Economic conditions change. Tariffs rise and fall. Markets move. Goals shift. That’s why ongoing monitoring and adjustments are essential.
The Investment Strategy: Bucket Planning for Volatility
One of the best defenses against volatility (including volatility caused by tariffs) is a bucket strategy for retirement investments. Here’s how it works:
Bucket 1: Cash
This is your short-term money — an emergency fund or 6–12 months of spending needs. It’s readily available and not exposed to the market.
Bucket 2: Income and Safety
This bucket includes assets meant to generate predictable income. Think of this as your paycheck in retirement. These funds are invested in non-correlated assets or more stable investments not tied directly to the stock market, protecting against downturns.
Bucket 3: Growth
This is the longer-term bucket, where you take more market risk in pursuit of higher returns. Diversification is key, often including stocks, bonds, and alternative investments.
For those impacted by tariffs and stock market volatility, this three-bucket approach considers and plans for a downturn scenario, so you don’t feel forced to sell growth assets just to meet living expenses.
Tariffs Explained Simply – The Bottom Line for Retirees
- Tariffs are taxes on imported goods and can raise prices for consumers.
- Governments use tariffs to protect industries, generate revenue, or negotiate trade deals.
- Tariffs can spark trade wars, which increase uncertainty and market volatility.
- For retirees, higher prices and market swings caused by tariffs can disrupt even the most careful plans.
By understanding how tariffs work and building a proactive financial plan that includes risk management strategies, you can stay confident through economic shifts — whether caused by tariffs or any other uncertainty.
If you’d like a self-assessment of your retirement plan, read the article “The Retirement Checklist Challenge“.
You may have learned about tariffs before, but have new questions from the retirement perspective. Schedule your complimentary 15 minute call with us and learn more about Tariffs and Your Retirement: What They Are –How They Impact You.