Cost-of-Living Adjustment - COLA

DEFINITION of 'Cost-of-Living Adjustment - COLA'

An adjustment made to Social Security and Supplemental Security Income to adjust benefits to counteract the effects of inflation. COLAs are generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers (CPI-W) for a specific period.

BREAKING DOWN 'Cost-of-Living Adjustment - COLA'

For example, if Kevin received $10,000 last year in Social Security benefits and the COLA for this year is 4.1%, his benefits for this year would be $10,410.

During the 1970s, inflation was very high. As a result compensation-related contracts, real estate contracts and government benefits used COLAs to protect against inflation.

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