Cost-of-Living Adjustment (COLA)

In terms of Social Security payments, the cost-of-living adjustment or COLA is referred to as the automatic adjustment being applied whenever the consumer cost index increased at the rate of no less than 3 percent in the 1st quarter of a year towards the 1st quarter of the following year.

A specific legislation enacted in the year 1973 which provides for cost-of-living adjustments or COLAs. Through COLAs, the supplemental security income and social security advantages keep pace with price increases. In the absence of COLAs, there can be no increase with the benefits in the Social Security to be payable in January, year 2011, or there be a growing increase in the SSI payments.

How is COLA calculated?
The Social Security Act signifies a specific formula on how each COLA is determined. Accordingly, COLAs are being based in the increase in consumer cost of index for workers earning the urban wage, as well as other clerical workers. The CPI-Ws are being calculated based on months by the Bureau of Labor Statistics.

Once a COLA is effective in December of the present year, then it will be equivalent to the increase of percentage, if any, in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) average from the 3rd quarter of the present year over the regular for the 3rd quarter of the preceding year by which the COLA has become effective. Should there be an increase, then it should be rounded to the closest 10th of 1 percent. If there will be none, or if ever rounded increase will be zero, then there can be no COLA.

In the proficient world of insurance, cost of living adjustment is usually referred to as COLA rider, of which such rider kicks only in if one actually goes on a disability claim in insurance, with the said disability to last for more that 1 year. It will be depending on the percentage option being selected when a certain policy has been taken out. It will somehow increase the monthly benefit on each year while one is having a claim along with a CPI up to the greatest being elected. It is usually the most expensive rider accessible on disability insurance policy. It is even not recommended by some insurance purchasers to people aging 42 and over. It is being designed for protection against inflation. After the age of 42, then one is not in much risk for inflation as in the younger years. It is highly suggested for persons to save money here, except if that person is in his younger years.

In purchasing individual disability insurance, if one feels that his employer does not provide group disability insurance, or if one’s present group policy do not offer adequate coverage, then he might want to consider in buying an individual Long-Term Disability Insurance (LTD) plan. This can be bought by means of agents and financial planners who themselves sell life annuities, insurance, or sometimes throughout a mortgage company. Accordingly, several individual policies are also having features allowing benefits to keep in pace with the inflation or the gradual salary increase, like COLA, which adds a percentage in one’s benefit for every year.