Cost-of-living adjustment (COLA)

The U.S. government pays a cost-of-living adjustment (COLA) to qualified federal employees and to all Social Security beneficiaries. COLAs are used to equalize cost-of-living differential and to protect against inflation. COLAs are based on the change in a widely used price index. For 2008, Social Security beneficiaries will receive a COLA of 2.3% for their benefits. This increase in benefits is based on the change in the consumer price index in the year ended in September 2007. Federal workers in Hawaii, Alaska, and the U.S. territory of Guam receive a salary COLA to compensate for the higher-than-average cost of living in those places.