COLA – Cost of Living Adjustments

The Social Security Administration announced the 2023 Cost of Living Adjustment will increase by 8.7%. It's the largest increase since 1981.
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Cost of Living Adjustments (COLA) affect Social Security, retirement pay and veterans benefits like  Department of Veterans Affairs disability compensation, annual military-base-pay cost-of-living increases, and location-based cost-of-living increases.

Table of Contents
  1. COLA for Social Security Benefits, Military Retirement Pay, and VA Disability Benefits
    1. How Is COLA Calculated?
    2. How Much is the Annual Military Retirement Pay COLA Raise?
    3. Which Payments Does SSA COLA Cover?
  2. Annual Military Pay Increases
  3. Location-Based COLA
    1. Outside the Continental U.S. Cost of Living Adjustments
    2. Continental U.S. Cost of Living Adjustments
  4.  

COLA for Social Security Benefits, Military Retirement Pay, and VA Disability Benefits

Several government pension, benefit and compensation programs are tied to the Social Security Administration’s COLA rate. Military retirement pay, VA disability compensation, Federal Employees Retirement System (FERS) savings and some other government compensation increase in tandem with COLA rates.

COLA offsets the impact of inflation on the purchasing power for such compensation. Percentage increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) determine COLA.

Federal law ties veterans benefits to COLA increases, however, Congress must pass a new version of the Veterans’ Compensation Cost-of-Living Adjustment Act each year.

How Is COLA Calculated?

The Department of Labor’s Bureau of Labor Statistics surveys over 80,000 goods and services to determine CPI-W. Increases in goods and services the index covers result in increased COLA the following year.

If there is no change or decrease in the cost of goods and services, there is no increase in the COLA. However, price decreases don’t decrease COLA-based benefits.

For example, when the CPI-W showed a negative inflation rate in 2015, the Social Security Administration did not increase COLA in 2016. As a result, military and veteran compensation for certain benefits remained flat instead of increasing.

How Much is the Annual Military Retirement Pay COLA Raise?

It varies. Here is a historical record of military retirement COLA pay raises:

YearAnnual Social Security COLA Increase
20238.7%
20225.9%
20211.3%
20201.6%
20192.8%
20182.0%
20170.3%
20160.0%
20151.7%
20141.5%
20131.7%
20123.6%
20110.0%
20100.0%
Source (SSA.gov)

Annual COLA increases are larger in years with higher inflation. There was no COLA increase in 2010, 2011 or 2016 because of low inflation.

Which Payments Does SSA COLA Cover?

The Social Security Administration’s COLA covers the following benefits:

You can read more about SSA COLA here and on this page.

Annual Military Pay Increases

Military members receive a pay increase in most years. This is often referred to as a military pay raise or annual cost of living adjustment. Unlike the example in the previous section, there is no automatic pay raise. And while Congress takes certain measurements into consideration when declaring pay raises, they are not tied to the CPI-W or any other specific measurement.

Instead, Congress votes pay raises into effect each year. Here are the past military pay raises:

YearMilitary Pay Raise PercentageMilitary Pay Tables
20234.6%2023 Military Pay Tables
20222.70%2022 Military Pay Tables
20213.00% 2021 Military Pay Tables
20203.10%2020 Military Pay Tables
20192.60%2019 Military Pay Tables
20182.40%2018 Military Pay Tables
20172.10%2017 Military Pay Tables
20161.30%2016 Military Pay Tables
20151.00%2015 Military Pay Tables
20141.00%2014 Military Pay Tables
20131.70%2013 Military Pay Tables
20121.60%2012 Military Pay Tables
20111.40%2011 Military Pay Tables
20103.40%2010 Military Pay Tables

Location-Based COLA

The final type of COLA is location-based. This is a supplemental benefit added to military pay. Location-based COLA is given to offset a higher cost of living based on where the service member lives.

This can be commonly found in outside the continental U.S. (OCONUS) locations depending on living expenses, the exchange rate and other factors. Location-based COLA can also be found in certain Continental U.S. locations. COLA can vary on a monthly basis in both CONUS and OCONUS locations.

Outside the Continental U.S. Cost of Living Adjustments

This is a non-taxable supplemental income. The service member’s rank of employment, years of service and number of dependents also determine the COLA payment.

Here is an overseas COLA FAQ.

Continental U.S. Cost of Living Adjustments

According to the Defense Travel Management Office, COLA “is a taxable supplemental allowance designed to help offset higher prices in the highest-cost locations in CONUS that exceed the costs in an average CONUS location by 8 percent or more. The program affects approximately 54,000 service members in 21 Military Housing Areas and 21 other counties in CONUS.”

 

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