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How Does a Cost-of-Living Adjustment (COLA) Affect My Salary?



Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees. Cost-of-living adjustments, or COLA, can also refer to annual adjustments made to Social Security and Supplemental Security Income, which are generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers, or CPI-W, for a specific period.

Workers who belong to a union may have a cost-of-living adjustment, sometimes referred to as a cost-of-living allowance, built into their contract. One example is the COLA required for U.S. Postal Service workers. For most employees, though, cost-of-living adjustments are made at the discretion of their employer.

Key Takeaways

  • A cost-of-living increase (COLA) is an increase in Social Security benefits to counteract inflation.
  • Inflation for COLA is calculated annually using the consumer price index for urban wage earners and clerical workers (CPI-W).
  • Some employment contracts’ salary or benefits like social security are adjusted for inflation.
  • Cost of living will also vary city by city and state to state, with large urban centers often demanding a higher cost to live – so you’ll often get paid for the same work in New York City vs. Tuscaloosa.

How Salary Cost-Of-Living Adjustments Are Calculated

Cost-Of-Living Adjustments for Relocations

COLA and Retirement Income

The Bottom Line



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