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COLA (Cost-of-Living Adjustment)

A COLA increases your pension payment each year to preserve purchasing power against inflation. Methods vary: fixed percentage (e.g., 2% every year regardless of actual inflation), CPI-linked (tied to the Consumer Price Index, often capped at 2-3%), or ad hoc (granted by the legislature, not guaranteed). Without a COLA, a $4,000/month pension loses roughly half its real purchasing power over 20 years assuming 3% inflation.

Example

A $3,000/month pension with a 2% fixed COLA grows to $3,060 in year 2, $3,121 in year 3, and reaches $4,458/month by year 20, a 49% nominal increase that partially offsets inflation.

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Pension Benefit Estimation

A defined benefit pension pays a guaranteed monthly income for life, calculated as: Years of Service × Final Average Salary × Benefit Multiplier. A typical 2% multiplier over 30 years replaces 60% of your final salary. Only 14% of private sector workers still have access to a pension (2025), but 86% of public sector workers do.