Can you get a cost-of-living raise? Here’s how to ask

With inflation soaring, we’re all battling record-high grocery bills, inflated student loan interest rates, and unsustainable rent increases.

All these factors inevitably affect our budgets, so it’s a fair question to pose if a cost-of-living raise would be a reasonable ask of your boss.

After all, if you don’t ask, you don’t get… right?

A cost-of-living raise, sometimes called a cost-of-living adjustment (COLA), is an increase in salary, meant to help employees cover increased living expenses. The cost of living has increased faster than wages for the past decade, and there’s no sign of it slowing down anytime soon. To keep up with the rising cost of daily life, workers need more money in their pockets.

Some companies incorporate COLAs into their employees’ yearly raises or compensation plans. But others only offer COLAs based on merit for their best employees — something that isn’t too cool.

That’s because a cost-of-living raise should be different from a merit-based raise, which is based on an individual’s job performance. A cost-of-living raise should be given to all employees to keep up with the rising cost of living so that their purchasing power is not diminished.

But unfortunately, cost-of-living raises are not mandatory benefits of employment. That’s why many employees decide to negotiate these pay increases into their contracts.

Cost of living is the amount of money needed to sustain a certain level of life. It includes items such as food, shelter, transportation, and healthcare.

To calculate the cost of living, economists look at the prices of goods and services that people typically purchase. This lumped basket of goods and services is known as the Consumer Price Index (CPI), which is used to measure changes in the cost of living over time.

The CPI is calculated by taking the average prices of a fixed basket of goods and services and comparing it to the prices of the same basket in a different period.

The CPI is used to:

• Measure inflation
• Adjust Social Security payments
• Adjust income tax brackets
• Adjust government benefits
• Adjust salaries and wages
• Make cost-of-living comparisons between cities

The CPI is not perfect, but it’s the best measure we have of inflation. The CPI does not include investment costs, such as stocks and real estate. It also doesn’t break down the differences in cost of living for specific groups of people, such as the elderly or low-income.

A Cost of Living Index (CLI) and the Consumer Price Index (CPI) are two ways to measure how much things cost.

The CPI measures the overall change in prices of goods, while a CLI measures how much the cost of living varies across regions (cities, states, etc.). While the CPI is government-reported, there is no official cost of living index created by the U.S. government.

There are generally two main reasons that play into getting a cost-of-living raise:

1. The cost of living has gone up. This applies to all of us, no matter where you live. Inflation is high right now, and across the country, the cost of living continues to increase faster than average wages. Plus, it’s impacted by many factors, like the costs of housing, food, transportation, and healthcare.
2. You’re relocating to a new city. Cost of living is not the same in every city. You’re going to pay much more to live in New York City than, say, rural Iowa. Plus, cost of living also varies within cities. Living in downtown Manhattan is much more expensive than living in Albany, New York. If you’re moving to a more expensive city or neighborhood due to job requirements, you should definitely ask for a cost-of-living raise from your employer.

Keep in mind that the cost of living is not static. It can change over time, so it’s important to stay up to date on the cost of living in your city or region.

Your own personal cost of living can vary with your lifestyle. Someone who lives in a luxury apartment in New York City and dines out at expensive restaurants will have a much higher cost of living than a person who lives in a small town in Iowa and cooks all their meals at home.

While you can ask for a cost-of-living raise based on your location, you shouldn’t ask for one simply because you like fine dining. COLAs are based on averages, so if your COLA increase doesn’t match your preferred lifestyle, but it does match the average for your area, you might have to tone it down on the fancy nights out — or seek out a higher paying job or merit-based increase.

The Social Security Administration’s Cost of Living Adjustment has had an insane jump since the pandemic: from 1.3% in 2020 to 5.9% in 2021, and to 8.7% in 2022! The SSA COLA hasn’t seen such a big spike since the early ’80s. 

Although an 8% cost-of-living raise probably isn’t a realistic option for most, it’s definitely worth asking your employer what you can get given these wild times.

For years, the average cost of living pay increase in a healthy economy has been around 2-3%. However, it’s become very clear that the cost of living isn’t going anywhere but up, and some employers are responding to this with raises of 4% likely for many employees in 2023.

By taking the time to research the market, you will be able to demonstrate your understanding of it to your manager and present the case for an increase that is appropriate for the current economic conditions.

Employees have the right to ask for a pay raise, and employers have the right to accept or decline your request. Asking for a cost-of-living raise at the right time and in the right way is essential to receiving the increase in wages you have requested.

Follow these steps to make the most convincing argument for your cost-of-living raise:

1. Do your research and know your numbers

When you sit down with a supervisor to request a cost-of-living raise, you should come with sufficient evidence that justifies your need for this pay increase. Providing statistics about the rise in living costs from the CPI and the national average salaries will support your request.

Before you meet with your boss, find out if cost-of-living raises are common at your company and whether other employees have received them in the past. You should also look up salary information for similar positions on job boards for a general sense of the going salary within your labor market, for your level of experience within your field, and how that information stacks up against the cost of inflation. Is the going rate for your position a suitable wage in the current state of the economy? Don’t forget to factor in the average cost of living in your state as well.

I recommend starting your research by visiting the U.S. Bureau of Labor Statistics website or reviewing the general salary information of your employer on sites like Glassdoor.

Before your meeting, you should also decide on the amount you would like to request. Laying out the exact details of your request, including the salary you make now and the raise you would like to receive, can help your case.

2. Consider if what you already have is better than most

Is there any “invisible” money included in your salary that you may not have accounted for?  This could include perks like:

• Wellness incentives for getting annual health checkups
• Employee discounts for choosing a preferred partnered cellphone carrier or internet provider
• Matched stock options, HSAs, and pensions offered by your employer
• Travel benefits
• Longevity pay

Many people forget about the smaller non-monetary incentives that give some employers a competitive edge over most, and that may compensate for a COLA.

3. Check your timing

Timing is everything. If your company is going through layoffs or just announced cost-cutting measures like a hiring freeze, it’s probably not the best time to ask for more money.

If your company isn’t in financial struggles, you’ll want to frame your ask around these times:

• During a weekly or bi-weekly check-in with your boss (if this falls on a Monday, consider scheduling a separate meeting for this topic since Mondays can be hectic days)
• Well before your annual review
• Before or at the beginning of Q4, which is typically also when performance review season starts
• After you’ve had a few wins under your belt and have demonstrated your value

4. Think outside the box and be creative

A cost-of-living wage may not necessarily come in the form of a monetary pay increase. Could you ask for other things that would still offer value and increase your quality of life, without it affecting your employer’s bottom line?

Some possibilities could be:

• The ability to work remotely
• Flexible work hours that extend beyond the confines of a traditional 9-5 schedule
• Health and fitness benefits, like gym membership access, or remuneration for healthcare professionals such as nutritionists, dieticians, therapists, and personal trainers
• More personal time off

5. Be prepared to cut ties if necessary

In some situations, you may need to be willing to walk away. If you’ve done your homework, established your value, and shown the company that you’re worth the investment, you may need to begin looking for a new opportunity that pays better than the one you have now.

Even though the economy is slow to bounce back to its pre-pandemic days, the employment market is surprisingly strong. CNBC reports that workers who switched jobs this year saw, on average, a 10% pay increase once inflation was accounted for.

6. Follow up on your request

After you meet with your supervisor, write a thank-you note or email that also lays out the details of your discussion. Presenting your request in writing will help your supervisor remember the exact numbers you discussed and serve as physical evidence of your conversation.

You’ve gotten your cost of living raise. Congrats!

Now you need to watch out for lifestyle creep. Lifestyle creep occurs when your earnings go up, and so you spend more money: maybe you buy a nicer car or start taking more expensive holidays. It’s also known as “status creep” or “salary creep.”

Remember, a cost-of-living raise is meant to bring you on par with the cost of current living conditions in your area: rent, food, utilities, etc. You don’t want to blow your new raise on non-essentials, instead of major goals like saving your first $100K.

» Take control and manage your money with the Best budgeting apps.

Remember, COLAs aren’t mandated by law, so your employer isn’t legally required to give you one.

If you’ve decided you still want to stay with the company, you may want to seek out other ways to get more merit-based compensation. Examine other opportunities for raises, such as a bonus for heading up projects that others have not taken on. You could also use those projects as a way to make yourself more competitive in networking and increase your chances of being selected for new, better-paying positions.

Or, you could take on a side hustle to help make up for that missing cash. In uncertain economic times, it’s important to not place all your eggs in one basket. Instead, diversify your income sources. From offering your home as an Airbnb to selling handmade arts and crafts on Etsy, there are endless opportunities to make some extra cash with very little start-up costs. This will ensure you are always in control of how much you’re expected to make.

Cost-of-living raises are more and more critical, with inflation driving our daily expenses well above average wages. So don’t be afraid to ask for one. If you’ve done your research, know your worth, and have a plan for whatever the outcome may be, you’re more likely to see the income you deserve.