Cost-of-Living Adjustment (COLA).

In plain English

A cost-of-living adjustment raises a payment each year to offset inflation, so the money keeps roughly the same buying power over time. Social Security is the best-known example: its benefits get an annual COLA tied to a measure of consumer prices, so checks rise when inflation does. Some pensions and wages use them too. A COLA is not a raise in real terms; it is meant to prevent a loss of purchasing power, and in years of high inflation it can be sizable.

01Why it matters

For retirees on Social Security, the COLA decides whether their income keeps up with rising prices, so the annual number directly affects their standard of living.

02The math, step by step

Inflation runs about 3 percent, so Social Security applies a 3 percent COLA. A 2,000 dollar monthly benefit rises to about 2,060, keeping its buying power roughly steady.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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