Pension COLA calculator
A pension that rises 2% a year while prices rise more is a pension that shrinks. This prices the shrinkage: the real income path, the year it crosses your line, and the lump sum that would buy full indexation back.
Worked example — Lump sum to restore full indexation: $20,824. -11.7% change in real income; $48,000 pension, capped at 2%, 10 years
Typical state pension cap: Most state and municipal pension COLAs cap the adjustment at 2% - the most common real-world configuration, and this page's default.
Advanced options 2
The asymmetry, stated as a number: run the same 3.11% average inflation as a flat path and the real index finishes at 0.897. Run it as the path that actually happened and it finishes at 0.883, which is 1.48 points worse. The cap binds in the high years and hands nothing back in the low ones. Source: BLS CPI-U CUUR0000SA0, annual average, index, 1982-84=100, 1913 to 2025; retrieved 2026-08-14.
How much does a 2% COLA cap cost over 10 years?
On a $48,000 starting pension capped at 2% a year over 10 realised years, real income fell 11.7% against what full indexation would have paid. Closing that gap for the whole period takes $20,824 today, discounted at 4%, which is 0.43 times one year of the starting pension. The cap bound in 7 of the 10 years, and most of the damage was done in a minority of them: the cap truncates the good years and gives nothing back in the bad ones, so a calculator that runs it against an average inflation rate instead of the realised path understates the loss by construction.
Year-by-year table
The default scenario above, year by year: CPI-U inflation, the adjustment paid, the pension, what full indexation would have paid, and the shortfall.
| Year | CPI-U inflation | Adjustment paid | Pension | Fully indexed | Shortfall | Real income | Real index |
|---|---|---|---|---|---|---|---|
| 2016 | 1.3% | 1.3% | $48,606 | $48,606 | $0 | $48,000 | 1.000 |
| 2017 | 2.1% | 2.0% | $49,578 | $49,641 | $63 | $47,939 | 0.999 |
| 2018 | 2.4% | 2.0% | $50,569 | $50,853 | $284 | $47,732 | 0.994 |
| 2019 | 1.8% | 1.8% | $51,485 | $51,775 | $289 | $47,732 | 0.994 |
| 2020 | 1.2% | 1.2% | $52,121 | $52,414 | $293 | $47,732 | 0.994 |
| 2021 | 4.7% | 2.0% | $53,163 | $54,876 | $1,713 | $46,502 | 0.969 |
| 2022 | 8.0% | 2.0% | $54,226 | $59,268 | $5,041 | $43,917 | 0.915 |
| 2023 | 4.1% | 2.0% | $55,311 | $61,707 | $6,397 | $43,024 | 0.896 |
| 2024 | 2.9% | 2.0% | $56,417 | $63,527 | $7,110 | $42,628 | 0.888 |
| 2025 | 2.6% | 2.0% | $57,545 | $65,199 | $7,654 | $42,365 | 0.883 |
Capped vs. fixed COLA: which costs more?
Same $48,000 starting pension, same 10-year horizon, run twice: once capped at 2%, once fixed at a flat 3%. The flat escalator is the shape of many buyout offers, framed as inflation protection when it is really a bet that inflation stays under the fixed rate.
| Adjustment | Real income change | Lump sum to restore indexation | Years it bound or fell short |
|---|---|---|---|
| Capped at 2% | -11.7% | $20,824 | 7 of 10 |
| Fixed at 3% | -1.1% | $7,979 | 3 of 10 |
What JMM thinks you should do with this
A capped COLA is a partially unindexed pension and should be valued as one, not counted at face value in a retirement plan. Treat the lump sum above as a real liability against your own balance sheet. A flat escalator sold as inflation protection deserves particular suspicion: it is a bet that inflation stays below the fixed rate, dressed as a hedge against it going above. Price any buyout offer that trades a lower starting pension for giving up indexation with this page before accepting it.
What this does not model
No mortality, no survivor benefit, no scheme solvency risk, and no tax. No floor beneath the adjustment, no catch-up provision, no discretionary increase outside the scheme rules, and no lag between the measurement period a scheme uses and the calendar year here. Adjustments are applied annually on CPI-U annual averages; schemes tied to CPI-W, a chained index, or a third-quarter comparison will differ. The discount rate is yours and the present values move a lot with it. Years past 2025 use your assumption and are labelled as assumed.
To check the CPI-U levels behind each year, use the inflation calculator. To test whether the assets meant to fund the shortfall actually survive tax and inflation, use the real after-tax return calculator, and to see how long a portfolio supports a spending level, the withdrawal rate explorer.
The next question after this one
Raise vs inflation calculatorCalculatorThe working-years version of the same test, run against a raise history instead of a capped adjustment.Open nextOther questions
- FIRE number and withdrawal-rate calculatorCalculatorHow long savings cover the gap the cap opens up, at a real return and spending level you choose.
- Consumer Price Index (Canada), Aug 17, 2026Source calendarA COLA is set from a published CPI figure. This is the next scheduled BLS release of that series.
All 130 calculatorsHow JMM sources and checks its numbersWhat stays free, and what early access would add
What Pro adds here
CPI-W and chained-CPI variants, survivor-benefit modelling, and transfer-value comparisons are Pro features. The launch list sends one email at launch.