Cost of living adjustment

What It Means

A cost of livingCost of livingWhat it costs to keep a certain standard of living, such as housing, food and transportation, in a given place at a given time. See more adjustment (COLA) is an increase in wages, pensions or benefitsBenefits packageEverything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year. See more meant to help them keep up with inflationInflationA general rise in the prices of goods and services over time, so the same amount of money buys less than it did before. See more. (1) In Social Security, it's the yearly percentage increase to benefits and Supplemental Security Income (SSI), set by a formula tied to the CPI-W, a price index from the Bureau of Labor Statistics. (2) At work, in a union contract or in a pension plan, a COLA is a raise tied to rising prices, with the size and timing set by that employer, contract or plan.

How It Sounds at Home

• "Did you see what the COLA is this year?"
• "My check went up in January."
• "The union got us a cost of living raise."

The Breakdown

Worked example. A 2.8% COLA, the Social Security figure for 2026, applied to three monthly amounts:

How Social Security works it out. SSA takes the average CPI-W for the third quarter (July, August and September) of the current year and compares it with the same quarter's average from the last year a COLA was determined. The COLA is based on the percentage rise between those two averages. For 2026, the third-quarter 2025 average was 317.265, and the rise from the third quarter of 2024 came to 2.8%.

What the result means. A COLA is meant to keep a benefit's buying powerPurchasing powerHow much a unit of money, such as one dollar, can buy. When prices rise faster than your money grows, its purchasing power falls. See more roughly where it was. Because it's measured from one third quarter to the next and paid from January, it reflects price rises that have already happened.

Good to Know

The Social Security Administration bases its COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Its 2.8% COLA for 2026 began with January 2026 benefits for nearly 71 million Social Security beneficiaries, and increased payments to SSI recipients began December 31, 2025. BLS reported the CPI-W up 3.5% in the 12 months through August 2026, but that 12-month reading doesn't set the next COLA, since SSA compares third-quarter averages. Check ssa.gov for your own benefit amount and for each new COLA. For a COLA at work, the rules are in your employer's policy or your contract.

Related Terms and Categories

• Inflation

  A general rise in the prices of goods and services over time, so the same amount of money buys less than it did before.

• Real income

  Income adjusted for inflation, so it measures what your pay can buy. The dollar amount before that adjustment is called nominal income.

• Purchasing power

  How much a unit of money, such as one dollar, can buy. When prices rise faster than your money grows, its purchasing power falls.

• Cost of living

  What it costs to keep a certain standard of living, such as housing, food and transportation, in a given place at a given time.

• Asking for a raise

  Requesting higher pay from your current employer, usually backed by your results, your role's market pay and what you plan to take on next.

• Salary negotiation

  Discussing pay and other terms with an employer before you accept a job offer, to reach a starting salary that fits the role and your skills.

Household money and budgeting