# Cost-of-Living Adjustment (COLA)

*Everyday Money — Finicade finance glossary*

A COLA is an automatic pay or benefit increase tied to a published inflation index, designed to hold purchasing power flat rather than to reward performance. US Social Security applies one annually based on a variant of CPI; many union contracts and pensions do the same. Two subtleties decide whether it works: which index is used (an index that understates your actual basket erodes you slowly), and whether it's applied before or after other increases.

**Also known as:** COLA, cost of living increase, indexation

**Related terms:** [Cost of Living](https://finicade.com/glossary/cost-of-living), [Inflation](https://finicade.com/glossary/inflation), [Consumer Price Index (CPI)](https://finicade.com/glossary/cpi), [Real Wages](https://finicade.com/glossary/real-wages), [Social Security](https://finicade.com/glossary/social-security)

Source: https://finicade.com/glossary/cost-of-living-adjustment