Cost-of-Living Adjustment (COLA)

The Cost-of-Living Adjustment (COLA) is a benefit to ensure your value of money at retirement keeps up with the rate of inflation. Typically, this benefit begins the second calendar year of retirement, although the annual rate of inflation and retirement law could affect the onset of your COLA. Under existing retirement law, retirees receive an annual COLA paid in the May 1 warrant each year.

COLA is dependent on three factors:

• The Consumer Price Index for All Urban Consumers (CPI, 1967), published by the Bureau of Labor Statistics (BLS)
• Your employer contracted COLA provision
• The year you retired

Consumer Price Index (CPI)

CPI determines the rate of inflation, and is compared annually. We use the CPI at the time of retirement to calculate what your value of money should be when we adjust for COLA. CPI is determined by the BLS and, by law, it is the official measure used by CalPERS to calculate COLA.

• The 2021 annual CPI is 811.705 and the rate of inflation is 4.70%.

Contracted COLA Provision

Your contracted COLA Provision determines your COLA limit. Most state retirees and all school retirees contract for a 2 percent COLA Provision, and public agencies can contract for a 3, 4, or 5 percent COLA Provision. The COLA Provision is compounded to calculate the COLA limit per year.

How Much Will My COLA Be?

The chart below indicates what percent COLA increase a retiree will receive based on their employer contracted COLA Provision and their retirement year.

• 2% COLA
• 3% COLA
• 4% COLA
• 5% COLA

How COLA Is Calculated

To calculate COLA, CalPERS:

Step 1

Calculates the rate of inflation, based on retirement year.

(Current Year CPI - Retirement Year CPI) / Retirement Year CPI = Rate of Inflation

Step 2

Calculates the compounded contracted COLA Provision percentage.

(example based on 2% contracted COLA Provision)

First year of COLA, 2% (no compounding)

Second year of COLA, 2% = 2% x 1.02% + 2% = 4.04%

Third year of COLA, 2% = 4.04% x 1.02% + 2% = 6.12%

Step 3

Uses the lesser of the two numbers from step 1 and 2, this is your COLA factor.

Step 4

Calculates COLA.

Base x COLA Factor = COLA

If you have any questions, contact us at 888-CalPERS (or 888-225-7377).

Videos

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  CalPERS Quick Tip | Cost-of-Living Adjustment (COLA)
  Video Length: 00:01:08