Calculation of Overseas COLA Index
A weighted system is used in the COLA calculation to prioritize each market basket item and ensure more dollar significance is placed on heavily weighted items such as car insurance, gasoline and day care. The weights are determined by the Bureau of Labor Statistics Consumer Expenditure Survey (BLS CES), which details how U.S. military families allocate their spendable income across all COLA types of goods and services. The BLS CES is used to determine the CONUS weighted average cost for each market basket item. The overseas weighted average cost for each market basket item (determined by the location specific Living Pattern Survey (LPS) and Retail Price Survey (RPS) data) is compared to the CONUS weighted average cost for the same item to produce an index for each item.
The index for each item in the market basket of goods and services is individually weighted and summarized to reach the final location COLA index. This final index indicates how much more expensive it is to purchase COLA types of goods and services in an overseas location than it is to purchase the same level of goods and services in average CONUS (e.g., an index of 120 at an overseas location means that it is 20 percent more expensive to purchase COLA types of goods and services than in average CONUS.)
Changes in exchange rates (where appropriate) are applied to the portion of the COLA index that reflects local currency purchases. Exchange rates are reviewed at least twice per month.
Payment of COLA is based on the member's Regular Military Compensation (RMC) and his or her spendable income, which are derived as follows:
- RMC includes basic pay, Basic Allowance for Subsistence (BAS), an average BAH, and the tax advantage from allowances being tax exempt updated with each military pay raise.
- Estimate of income calculated by years of service and dependency status; updated with each pay increase.
- Spendable income is derived from Bureau of Labor Statistics Consumer Expenditure Survey (BLS CES) data and carefully details how military families allocate their spendable income across all COLA types of goods and services.
Spending for transportation, miscellaneous, household furnishings, food at home, recreation, food away, clothing, household help, personal care, tobacco and alcohol, telephone and medical are included in COLA. Spending on federal income taxes, shelter expenses, gifts and contributions, life insurance, and savings are not part of COLA.
COLA is paid as a percentage of spendable income. An index of 110 would result in an annual COLA of 10 percent of the spendable income corresponding to the member's grade, years of service, and family size.
Updates Based on Currency Fluctuations
Allowances are paid in U.S dollars; however, rent, utilities, and move-in housing allowance are typically paid in local currency. The goal is to maintain purchasing power in local currency over time. Click here to view updates based on currency fluctuations.