Overseas Cost of Living Allowances (COLA)
The Overseas Cost of Living Allowance (COLA) is a non-taxable allowance designed to offset the higher overseas prices of non-housing goods and services. It affects approximately 250,000 Service members at 600 locations overseas, including Alaska and Hawaii. Approximately $2 billion is paid in Overseas Cost of Living Allowances annually.
Overseas COLA is intended to equalize purchasing power so that Service members can purchase the same level of goods and services overseas as they could if they were stationed in CONUS. It is calculated by comparing the prices of goods and services overseas with average prices for equivalent goods and services in CONUS. The result of this comparison is an index that reflects a cost of living. If prices in CONUS are rising at a greater rate than those overseas, COLA will decrease. If prices overseas are rising at a greater rate than those in CONUS, COLA will increase. Similarly, if overseas prices rise or fall at the same rate as CONUS prices, COLA will stay the same.
Overseas COLA is not a fixed amount. COLA adjustments are either immediate or made incrementally, depending on whether the payment will increase or decrease, as well as whether the change is based on currency or data. For COLA changes based on data, increases are made immediately, but COLA reductions based on data are phased in at six points per month to help minimize the impact. COLA changes based on currency are effective immediately for both increases and decreases to COLA. COLA reductions become final following review and approval by the Military Advisory Panel (MAP)..
Two surveys determine the relative cost of living overseas compared with CONUS. The Living Pattern Survey (LPS), conducted every three years, captures input from Service members and their families to establish where and how they purchase goods and services. The Retail Price Schedule (RPS), conducted every year, collects prices for a market basket of approximately 120 goods and services. Service members play a critical role by participating in the surveys.
Location specific LPS and RPS data determine Overseas COLA and directly influence the COLA payments Service members receive. Rank, years of service and number of dependents determine the COLA payment.