Cost-of-Living Adjustment(COLA)
An annual increase to certain benefits, like Social Security, meant to keep pace with inflation.
A cost-of-living adjustment (COLA) periodically raises benefit amounts to help offset inflation. Social Security applies a COLA most years based on a government inflation measure, which helps that income hold more of its purchasing power over time.
Not all retirement income includes a COLA. Many fixed annuity payments, for example, stay level unless an inflation feature is added, so coordinating which dollars rise with inflation is part of income planning.
Example
When a COLA is announced, a retiree's monthly Social Security payment rises, while their level fixed-annuity payment stays the same.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.
Related Terms
Full Retirement Age
The age at which you qualify for 100% of your Social Security benefit, based on your birth year.
Longevity Risk
The risk of outliving your savings because retirement lasts longer than planned.
Immediate Annuity
An annuity purchased with a lump sum that begins paying income almost right away.
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Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.