How Cost-of-Living Adjustments (COLA) Work
Each year, millions of military members, veterans, and their families rely on the Cost-of-Living Adjustment, commonly referred to as COLA.
This annual increase in federal benefits is designed to prevent inflation from eroding the purchasing power of those benefits. The process is tied to the Social Security Administration’s calculations and affects payments from both the Department of Defense and the Department of Veterans Affairs.
How COLA Works
The annual COLA process begins with the Bureau of Labor Statistics, which calculates the Consumer Price Index for the year. The Social Security Administration uses this to determine the official COLA and typically announces it in mid-October.
The Social Security Administration (SSA) uses a set formula to calculate the COLA. The agency compares the inflation index from one year to the next. The calculation period is the third quarter, which includes July, August, and September.
The SSA finds the average for the index in the third quarter of the current year. It then compares this figure to the average for the third quarter of the previous year, when a COLA was implemented. The percentage increase becomes the COLA for the next year. If there is no price increase, there is no COLA.
The Social Security Administration announces the COLA in October. This timing follows the release of the September inflation data by the Bureau of Labor Statistics. Beneficiaries see the change in their benefit payments starting in January.
COLA Adjustments Are Not Always Automatic
Once announced, the DoD automatically applies the COLA to military retirement pay and survivor annuities. But the process for the Department of Veterans Affairs requires legislative action.
Following the passage of the required act, Congress authorizes the VA to implement the increase. The COLA increase is automatic. Veterans do not need to take any action to receive the adjusted amount.
COLA is Not the Same from Year to Year
Cost-of-living adjustments are subject to change. Here’s a look at the COLA changes over a 20-year period ending in 2025. As you’ll see, some years did not get COLA at all, while in some years (such as 2023) the adjustment was high:
- 2006: 4.1%
- 2007: 3.3%
- 2008: 2.3%
- 2009: 5.8%
- 2010: 0.0%
- 2011: 0.0%
- 2012: 3.6%
- 2013: 1.7%
- 2014: 1.5%
- 2015: 1.7%
- 2016: 0.0%
- 2017: 0.3%
- 2018: 2.0%
- 2019: 2.8%
- 2020: 1.6%
- 2021: 1.3%
- 2022: 5.9%
- 2023: 8.7%
- 2024: 3.2%
- 2025: 2.5%
How COLA Affects Department of Defense Benefits
The Defense Finance and Accounting Service (DFAS), under the DoD, manages benefits for military retirees and their survivors. What follows are military-related benefits that receive an annual cost-of-living adjustment.
Military Retirement Pay. The most significant benefit the COLA adjusts is the monthly retired pay for service members who completed a full military career. The Department of Defense adjusts this pay each year, with the change taking effect on December 1st. The federal government maintains a COLA official page run by the Defense Finance and Accounting Service (DFAS).
Survivor Benefit Plan (SBP) Annuities. The Survivor Benefit Plan provides a financial safety net for the spouses or children of deceased military members. Annuities paid under SBP, as well as the Reserve Component Survivor Benefit Plan, also index to the annual COLA. The same DFAS page detailing the COLA for retired pay also applies to SBP annuities (see above).
Department of Veterans Affairs COLA
By law, the VA is required to match the COLA percentage set by the Social Security Administration. Each year, Congress passes legislation to authorize this increase for benefits including, but not necessarily limited to:
Disability Compensation. The VA provides tax-free monthly payments to veterans with service-connected injuries or illnesses. It publishes the official, updated pay rates annually on its website. Learn more about VA disability pay.
Dependency and Indemnity Compensation (DIC). The VA pays this tax-free benefit to eligible surviving spouses, children, or parents of service members who died in the line of duty or from a service-related condition. The VA also publishes updates to its DIC program each year.
Several other VA payments also tie to the COLA. This includes Special Monthly Compensation (SMC), an additional benefit for veterans with severe disabilities.
The VA maintains SMC information, including pay rates and qualifying guidelines, at its official site. The annual clothing allowance and needs-based pensions are also updated annually, with the latest information available through the main VA.gov benefits portal.
About the author
Editor-in-Chief Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.
