COLA stands for Cost of Living Adjustment. With CalPERS, not everybody has the same COLA like with Social Security benefits. In fact some people have no COLA at all.
The COLA is determined by your employer’s contract with CalPERS.
The best way to find out about your CalPERS COLA is to ask the HR department at your employer. Another way to find out is to attend one of the retirement seminars held by CalPERS, who will have the specifics of your employer’s plan for each of the attendees.
The possible values for the COLA are 0%, 2%, 3%, 4%, and 5%.
CalPERS with COLA vs. 401k Account / IRA Account/ 457 Account
A CalPERS plan with a COLA is much more valuable than a retirement account with no COLA. With defined contribution retirement accounts such as a 401K, IRA, or 457 account, they do not have any guaranteed way to keep up with inflation. It’s possible for the real value of a 401k or IRA to fall below inflation, especially with lackluster stock market results such as the DJIA (Dow Jones Industrial Average) from 1999 to 2009, which was flat. After accounting for inflation, the DJIA is worth less than what it was in 1999.
In a CalPERS retirement with a COLA, the COLA is guaranteed every year after you apply for retirement with CalPERS. Remember, you need to be age 50 with 5 years of service credit to apply for retirement.
Effect on CalPERS Airtime Purchase
If you purchase airtime, one of the factors that may increase your cost is whether you have a COLA. If your plan has a COLA, expect your airtime purchase cost to rise. But keep in mind that buying an annuity with the same COLA in the private marketplace is often much more expensive. The insurance company annuity is also less safe since an insurance company has less financial resources than CalPERS, which is backed by the state of California’s right to taxation.