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Cost of Living Adjustment

Across the United States things seem to be going up in price, but there are those individuals that are on a fixed income. How do these increases or inflation affect them? How do seniors on social security continue to live with inflation? This is where cost-of-living adjustment comes in. But what is cost-of-living and what is a cost-of-living adjustment? Read below where questions pertaining to cost-of-living adjustments that have been answered by the Experts.

What is cost of living adjustment?

A cost-of-living adjustment or allowance also known as the acronym COLA, adjusts those salaries that are based on the changes in a cost-of-living index, these salaries are typically adjusted annually. Such salaries that may be tied to a cost-of-living index are pension benefits, employment contracts, and government entitlements. These salaries may also vary as they may be linked to a cost-of-living index that will vary if the employee changes their geographic location.

Who qualifies for a cost-of-living adjustment in regards to social security benefits?

Those who have received social security benefits the year prior to a cost-of-living adjustment will be able to receive the increase from the cost-of-living adjustment starting January of the year of the adjustment. For example those that received social security benefits for the year 2011 would have received the cost-of-living adjustment that occurred in 2012.

If a person defers social security until the age of retirement will they miss the cost-of- living adjustment (COLA) for that year?

Since the cost-of-living adjustment is due to inflation, the cost-of-living adjustment would still apply to the individual’s social security. This is because the amount they will receive after the cost-of-living adjustment would be the equivalent of the amount they would have received plus inflation, in theory. So no a person who decides to defer retirement will not be penalized and will still receive the cost-of-living adjustment, as if they had retired the year before.

When a cost-of-living adjustment occurs when does it show up on an individual’s social security benefits?

When a cost-of-living adjustment has been approved, which does not happen every year, the cost of living will begin in January of the next year. The cost-of-living adjustment is also known by the year it was started. For example the cost-of-living adjustment of 2012 was started in January of 2012, when those who receive social security benefits should have noticed an increase of 3.6%.

Besides social security, where else do cost-of-living adjustments occur?

Cost-of-living adjustment may also be used as a term for extra pay or a stipend for employees who have been temporarily relocated, and given to help the employee compensate for the difference in the cost-of-living from the place they moved from. Even though those that have been permanently relocated may not receive this exact cost-of-living adjustment up front, they may receive an addition to their base salary to make up the difference for the higher cost-of-living of the area. Also servicemen of the military that have been stationed overseas may receive a cost-of-living adjustment if the area in which they are based has a higher cost-of-living than an average area located in the United States.

Cost-of-living adjustment or COLA may be hard for some people receiving social security, be it from retirement or from disability, to understand. The cost-of-living adjustment for social security is not something that is guaranteed to happen every year, and should not be expected to happen every January. Also those who are moving from one region to another should look into the cost-of-living for the areas that they are moving from and are moving to, to see how the two compare, and if there may be a cost-of-living adjustment for moving from one region to the other. There are bound to be questions when it comes to cost-of-living adjustments, and one way to start is to ask an Expert.
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