Capped COLA Calculator
Apply a maximum adjustment rate.
Capped COLA Calculator: Scenario Inputs
Annual percentage rate or benchmark index change.
Inflation & Purchasing Power Analysis
Over 3 years at 3.5% inflation, a $75,000 salary requires $83,154 to retain equal purchasing power. Without matching raises, your real compensation experiences an effective reduction of $7,355 (-9.81%).
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How Capped COLA Calculator Works?
The Capped COLA Calculator works by taking the smaller of actual inflation and the cap each year.
Enter pay or benefit
Type the salary or pension amount that the capped COLA applies to.
Set the cap
Type the maximum yearly COLA.
Enter yearly inflation
Type inflation for each year, including years above the cap.
Read the gap
The output shows capped pay, full-inflation pay and the growing gap.
Capped COLA Calculator Formula
The Capped COLA formula uses the lower of inflation and the cap as each year's adjustment.
COLAt = min(πt, Cap)
Payt = Pay0 × Π (1 + COLAk)
Variables
- πt
- Inflation in year t
- Cap
- Maximum allowed COLA
Worked example
With a 3% cap and inflation of 1.2%, 4.7%, 8.0%, 4.1% and 2.9%, a $40,000 benefit grows to $45,516. Full indexation gives $49,032, so the cap costs $3,515 per year by year 5.
Capped COLA Calculator Conversion Table
This table applies a 3% COLA cap to a $40,000 benefit with example inflation rates.
| Year | Inflation | Capped COLA | Capped pay | Fully indexed pay | Real value lost |
|---|---|---|---|---|---|
| Year 1 | 1.2% | 1.2% | $40,480 | $40,480 | 0.00% |
| Year 2 | 4.7% | 3.0% | $41,694 | $42,383 | 1.62% |
| Year 3 | 8.0% | 3.0% | $42,945 | $45,773 | 6.18% |
| Year 4 | 4.1% | 3.0% | $44,234 | $47,650 | 7.17% |
| Year 5 | 2.9% | 2.9% | $45,516 | $49,032 | 7.17% |
What is Capped COLA Calculator?
The Capped COLA Calculator is a tool that applies a cost-of-living adjustment (COLA) limited to a maximum rate, such as 3%. The cap protects the payer from high-inflation years and shifts the loss to the recipient.
Inflation above the cap is lost for good unless the plan has a carry-forward or "bank" rule.
What are the uses of Capped COLA Calculator?
There are 4 main uses of the Capped COLA Calculator.
Assess pension caps
See the long-run cost of a capped pension COLA.
Negotiate cap levels
Compare 2%, 3% and 5% caps in bargaining.
Budget for payers
Employers and plans cap cost growth in high-inflation years.
Plan retirement
Retirees on capped COLAs plan extra savings.
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