COLA — how your income grows over time

What a COLA is

A cost-of-living adjustment is the yearly raise applied to an income stream so it keeps pace with rising prices. Social Security has one. Many public pensions have one. Plenty of private pensions have none at all.

You enter it as COLA / growth % on each income stream under My Plan → Income. The app then grows that stream forward for the life of your plan.

When it takes effect: January, once a year

This is the part people find surprising. Your COLA is applied once a year, in January — not spread out month by month.

Social Security's adjustment is announced each October and appears in the January payment. Most pensions and wage rises work the same way. So in the app, a $2,000 benefit with a 2.5% COLA reads $2,000 every month of 2026, then $2,050 every month of 2027, then $2,101 through 2028.

That means the figure in your projection matches the number on your award letter, instead of sitting somewhere between this year's and next year's.

Two details worth knowing:

• A stream that starts mid-year gets the next January in full. Claiming in July earns you no part-year raise, and doesn't make you miss January's either. That's the real rule.
• There's no raise in the first calendar year of a stream that starts in January. The first increase arrives twelve months later.

What rate to enter

Enter the raise you expect this stream to get — not general inflation, and not a guess about the whole economy.

• Social Security — 2 to 2.5% is the usual long-run planning figure. The historical average is around 2.6%, but it swings hard: 8.7% in 2023, 3.2% in 2024, 2.5% in 2025. Check ssa.gov for the current year if you want to be exact.
• A public or federal pension — whatever your plan documents say, and note that many are capped (for example, "CPI up to 3%").
• Wages, while you're still working — around 3% is a reasonable placeholder.
• A private pension — very often 0%. See below.

The field that matters most: a pension with no COLA

If your pension doesn't adjust, enter 0. Don't round it up to 2% for tidiness, and don't leave the default in place.

A $3,000/month pension with no COLA is still $3,000/month in thirty years — but at 3% inflation it buys what about $1,236 buys today. It loses roughly three-fifths of its purchasing power over a long retirement, while your expenses keep climbing.

That single field moves run-out dates more than almost anything else in the app. An optimistic 2% typed into a pension that is actually flat hides a real risk, and it's the kind of error that only becomes visible when it's too late to plan around.

COLA is not the same as inflation

They're easy to confuse because they're both percentages that grow things:

• COLA grows your income, stream by stream, stepping each January.
• Inflation grows your expenses, from the start of your plan, smoothly. Prices drift up continuously rather than jumping on a fixed date, so the app models them that way.

You set inflation once, under My Plan → Profile & assumptions; you set COLA separately on each income stream, because they genuinely differ. Social Security rising 2.5% while your pension is flat and healthcare climbs 5% is a perfectly ordinary situation, and the projection should reflect it.

Enter today's dollars

The amount you type for an income stream is what it pays when it starts — in today's money. Don't inflate it yourself. If your benefit statement says $2,400 a month, enter 2400 and let the COLA field carry it forward.

Doing both — entering an inflated figure and a COLA rate — compounds the increase twice and quietly overstates your income for thirty years.

See also income streams and the glossary. All figures here are educational estimates, not financial advice.