Cost of Living Raise

The cost of living is different in the various regions throughout the United States. An item purchased in Idaho for $5 might cost $15 in New York. To account for these differences and many other factors, the U.S. government and many private employers offer annual cost of living raises to their workers.

CPI

The Consumer Price Index is a government gauge that determines the average value of a basket of goods and services across America. The CPI is is a national average, and draws it's conclusions from data from every city in the United States. It covers services and products ranging from basic food items to medical expenses and services. The CPI is the index that the government uses for adjustments for its employees salaries and Social Security benefits.

Location

Economies in the United States are vastly different from city to city. As a result of this disparity, your purchasing power is going to change accordingly. As of 2009, an income that would be modestly affluent in Cleveland, might be near the poverty level in Los Angeles. Employers will often offer you a cost of living raise to compensate for changes in purchasing power when you are relocated to another city.

Social Security

As of 2009, the Social Security plan has a cost of living adjustment built in to its payment structure. Social Security will have a COLA (Cost Of Living Adjustment) applied every few years which raises your monthly benefits to adjust for inflation and your current location.

Inflation

Many public sector jobs, and even some private sector jobs, will offer you a cost of living raise based on the nation's inflationary rate. Inflation affects how much your money is worth year to year. As the government prints more money, the supply increases which decreases the value of every dollar. Provisions that include an annual salary raise based on the inflation rate will help keep your purchasing power at the same level or better year to year.

Considerations

When making the decision to relocate to another city, cost of living should be a primary consideration. Your purchasing power and income level can change dramatically and you should attempt to negotiate an income adjustment with your employer if one is available. Another consideration when reviewing yearly raises is the inflation rate. If you are considering a cost of living adjustment being built into your contract with your employer, make sure to include a provision for a minimum inflationary raise. By increasing your income to at least the level of inflation every year, you will safeguard the purchasing power of your money.

References

• CPI
• COLA