An increase in income or benefits that is designed to help offset the effects of inflation. The goal is to maintain the purchasing power of individuals receiving the income or benefits. Here are some key aspects of COLA:
- How it’s calculated: COLA is usually calculated based on changes in the Consumer Price Index (CPI), which measures the average price change over time for a basket of goods and services.
- Social Security: The Social Security Administration (SSA) provides an annual COLA to Social Security beneficiaries to ensure their benefits keep up with inflation.
- Pensions: Some pension plans also include COLA provisions to help retirees maintain their standard of living.
- Employment: In some cases, employers may offer COLA adjustments to employees’ salaries to help them cope with rising prices.
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