A Cost of Living Adjustment (COLA) increases your paycheck or benefits to match inflation, ensuring your purchasing power stays steady as prices rise. It acts as a salary adjustment based on the Consumer Price Index rather than job performance. For 2026, the Social Security COLA is 2.8%, providing a direct percentage boost to benefits.
COLA is an annual cost-of-living increase that begins the second calendar year after retirement and helps your retirement benefit keep up with the rate of inflation. Eligible retirees, including survivors and beneficiaries, will receive information in April for their May 1 retirement check.
The U.S. Department of Labor calculates the change in the Consumer Price Index (CPI) for urban wage earners and clerical workers from the third quarter average of the previous year to the third quarter average for the current year.
Millions of Americans received a 2.5% cost-of-living adjustment (COLA) to their Social Security benefits in January 2025, helping retirees and beneficiaries keep pace—at least in theory—with rising prices.
A cost-of-living adjustment (COLA) is an annual adjustment applied to retirement income to counteract cost changes in the economy (inflation). While most DRS retirement plans offer a COLA, Plan 1 members in PERS and TRS only have a COLA if they selected it during retirement.
COLA increases and decreases are implemented in full as often as every pay period.
A raise is typically merit-based and reflects an employee's performance or contribution to the company. On the other hand, a cost of living adjustment (COLA) is an increase in an employee's salary or hourly wage designed to keep their spending power consistent with inflation or other economic factors.
Other allowances, such as cost of living allowance (COLA), profit-sharing payments, cash benefits of unused vacation and sick leave, maternity leaves, overtime pay, holiday pay, night shift differential, and other allowances, are not included in the computation. This is in line with DOLE 13th Month Pay Rules.
The 2.8 percent COLA will boost the average monthly benefit for a retired worker by about $56, from $2,015 to $2,071, according to SSA estimates. The average monthly survivor benefit would inch up by about $52, and the average payment for a worker collecting Social Security Disability Insurance would go up by $44.
Do Private Employers Ever Need to Provide COLA? For private-sector employers, there is no obligation under federal law to provide automatic annual COLA increases to wages or salaries. The 2.8% figure does not impose a regulatory mandate on private businesses.
First Time COLA. TMRS uses the inflation rate as measured by the Consumer Price Index to determine the cumulative rate of inflation since you retired. Then, that inflation rate [A] is multiplied by [B] your city's selected COLA percentage (30%, 50%, or 70%).
Key Takeaways
Social Security COLAs are automatic and begin in January. The Consumer Price Index for Urban Wage Earners and Clerical Workers tracks inflation and determines the annual COLA rate. Everyone receiving SSDI or SSI benefits gets the COLA.
No. COLAs are not one-time payments.
A cost of living adjustment is an increase in pay or benefits to cover the rising cost of goods and services due to inflation.
Each year, the SSA automatically applies COLA to payments made to those receiving Social Security and SSI. For 2025, the COLA increase was based on the rise in the CPI-W from the third quarter of 2023 through the third quarter of 2024. The SSA announced a 2.5% COLA increase for 2025 in October 2024.
It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
The adjustment can vary based on several factors, such as where your employees live or what data you use to determine the increase. A standard tool employers use to calculate a COLA is the Consumer Price Index (CPI), which measures changes in average price over time for various goods and services.
They usually range from 5-10% of your year's earnings. For example, if your salary is $50,000 a year, your holiday bonus can vary from $2,500 to $5,000. You can usually determine your bonus percentage by checking your employment contract or asking a supervisor.
The IRS HSA 13-month rule allows you to make a full year's contribution to your Health Savings Account if you're eligible on December 1st. You must remain eligible through the following year to avoid tax penalties.
All rank-and-file employees in the private sector are entitled to receive 13th-month pay as long as they have worked for at least one month during the calendar year. This includes regular, casual, contractual, and even resigned or terminated employees.
A cost-of-living allowance (COLA) is an additional payment to an employee's salary or compensation over and above their wage grid to counteract the effects of rising prices for goods and services, ensuring their purchasing power is maintained.
Cost-of-living raises are not mandated by state or federal law, and companies only need to ensure they're paying applicable minimum wages. However, there are some exceptions where COLAs become mandatory — some employment agreements or executive contracts may specify automatic adjustments.