Now that you’ve received your 2024 cost-of-living adjustment (COLA) in your May retirement check, you’re probably curious about how your COLA amount was calculated. These facts should also provide insights into why CalPERS cannot simply raise your COLA amount due to the significant impact of inflation in today’s economy.
Here are the top COLA facts you need to know:
1. Who Determines My Annual COLA Percentage Amount?
You might be surprised to learn that the cost-of-living adjustment (COLA) percentage that you receive annually is a contracted benefit that your employer decided to provide as part of your retirement benefit package. Since more than 95% of all CalPERS retirees receive a 2% COLA, that means your employer selected that percentage as your annual COLA — not CalPERS.
Most state and all school agencies contract for a maximum of a 2% COLA that is compounded annually, while public agencies may contract for a maximum of a 2%, 3%, 4%, or 5% COLA.
2. Why Does It Take Two Years to Get My First COLA?
The retirement law states that retirees receive their first COLA in the second calendar year of retirement. That means if you retired in 2022, you received your first COLA this month. If you retired in 2023, you’ll see your first COLA in your May 2025 retirement check.
3. Why Don’t I Get My COLA in January, Which Aligns With Social Security’s COLA?
The retirement law specifically determines the date of May 1 to receive your COLA adjustment. The law further states that your COLA is to be included with your regular retirement check.
The Social Security Administration also uses a different method for calculating COLA benefits that it pays in January of each year. You can find more information about the SSA COLA on their website.
4. Why Is the Consumer Price Index Used to Calculate My COLA?
The law requires CalPERS to calculate annual inflation figures for COLAs by using the All Urban Consumer Price Index (CPI-U). CalPERS uses the CPI-U at the time of retirement to calculate what your value of money should be when we adjust for COLA.
Your COLA allowance can equal, but not exceed, the rate of inflation using the CPI-U. The law also limits your annual adjustment to the rate of inflation, or the COLA based on your agency’s contract with CalPERS — whichever is lower.
5. Why Can’t I Do a Simple COLA Calculation to See my Personal COLA Amount?
The process for calculating your COLA is more complex than simply multiplying your retirement allowance by your COLA adjustment (2%, for example). In fact, a compounded percentage is applied against a figure known as your base allowance. Generally, that’s the gross amount you received at the time of your retirement.
The result is that mathematically you will get a higher adjustment over time than by simply multiplying your COLA by your gross allowance.
If you want to see the actual COLA calculation that is used, we provide a calculation example on our website that will give you an estimated COLA amount.
Learn More
For more information about the COLA, visit our COLA webpage.
If you have further questions about your COLA, send us a secure message through myCalPERS or call us at 888 CalPERS (or 888-225-7377).