Cost-of-Living Adjustment (COLA)

COLA is an annual cost-of-living increase that begins the second calendar year after retirement and helps your retirement benefit keep up with the rate of inflation. Eligible retirees, including survivors and beneficiaries who receive a monthly benefit, receive COLA on their May 1 retirement check.

COLA is dependent on three factors:

• The Consumer Price Index for All Urban Consumers (CPI, 1967), published by the Bureau of Labor Statistics (BLS) annually
• Your employer contracted COLA percentage (e.g., 2%, 3%, 4%, or 5%)
• 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’s the official measure used by CalPERS to calculate COLA.

The 2022 annual CPI is 876.664 and the rate of inflation is 8.00%.

The CPI represents the cost of an item compared to the cost in 1967. For example, in 1967 an item cost 100.000, or $1.00. In 2022, the same item would cost $8.77.

To calculate the rate of inflation for 2022, we:

(Use the Current Year Annual CPI – Previous Year Annual CPI) / Previous Year Annual CPI = Current Year Rate of Inflation

(876.664 – 811.705)/811.705 = 8.00%

Contracted COLA Percentage

Most state and all school agencies contract for a 2% per year COLA, and public agencies can contract for a 2%, 3%, 4%, or 5% per year COLA. If the rate of inflation since retirement is higher than the employer contracted COLA percentage, by law, we must apply the lessor of the two.

Social Security Administration COLA compared to CalPERS COLA

The Social Security Administration uses a different method for calculating COLA benefits and is payable in January versus CalPERS benefits being paid in May. Visit the Social Security Administration website for more information.

How Much Will My COLA Be?

The chart below provides the percent allowance increase a retiree will receive based on their employer contracted COLA percentage and their retirement year. There are select retirement years that also include Purchasing Power Protection Allowance (PPPA) benefits. Multiplying your current gross allowance by the chart’s COLA and PPPA (if applicable) allowance increase percent, will provide an estimate of your 2023 COLA increase.

• State and School
• Public Agency

How Does CalPERS Determine the COLA Percentage to Pay Retirees?

We determine the COLA amount to be paid to retirees by first comparing the compounded rate of inflation to the compounded COLA percentage based on the employer contract. The actual COLA percentage you receive is the lower of the two compounded amounts. We then use your base allowance, which is the amount you received when you first retired and prior to any cost-of-living-adjustments.

When the Rate of Inflation is Higher Than Your Employer Contracted COLA Percentage

Anytime the rate of inflation is higher than your employer contracted COLA percentage, the difference between the two is used towards eligibility for Purchasing Power Protection Allowance (PPPA).

How COLA Is Calculated

To calculate COLA, CalPERS:

Step 1:

Calculates the calendar year rate of inflation, based on retirement year.

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

Step 2:

Calculate the compounded contracted COLA percentage.

(example based on 2% contracted COLA Provision)

Year 1 COLA factor is 0.0200 (or 2.00%)

Year 2: 1.0200 x 1.02 = 1.0404 – 1 = 0.0404 (or 4.04%)

Year 3: 1.0404 x 1.02 = 1.0612 – 1 = 0.0612 (or 6.12%)

Year 4: 1.0612 x 1.02 = 1.0824 – 1 = 0.0824 (or 8.24%)

Year 5: 1.0824 x 1.02 = 1.1040 – 1 = 0.1040 (or 10.40%)

Step 3:

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

Step 4:

Calculate COLA

Equation: Base allowance at retirement x COLA Factor = COLA

COLA Calculation Examples

• State Agency or School
• Public Agency

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: 1:08