Tiny Bubbles are Back in the COLA

(Editor’s Note: Corrections have been made to this column since it was originally published.)

After a two-year, no-cal diet, retired federal and military personnel are on track for a cost of living adjustment (COLA) in their January 2012 civil service retirement benefit checks.

But don’t spend it yet…

Federal, military and Social Security retirees haven’t had an inflation-driven COLA since 2009 when they got a 5.8 percent adjustment. Because of low inflation and deflation they didn’t get a raise in 2010 or 2011.


Raises for the retired feds are based on the increase in inflation as measured by the Consumer Price Index. They get an adjustment based on the rise in the CPI from the current third quarter (July, August and September) over the same time period in the previous year. If inflation as measured by the Bureau of Labor Statiistics goes up, so do federal retiree benefits.

The National Active and Retired Federal Employees organization says the size of the January raise (if there is one) will be determined by the CPI-W for July-August-September of this year. The final figure won’t be available until mid-October. For more detail click here.

For many federal retirees, the two-year-COLA drought was both a surprise and a financial nightmare. Long time retirees had, thanks to inflation, grown accustomed to getting increases each January. The only issue was how much. For the last two years the answer was zero.

Retirees point out that their health insurance premiums, along with most federal and nonfederal workers, have gone up substantially in the past two years. Despite the government subsidy (Uncle Sam pays about 70 percent of the total premium) many were forced to move into plans with lower premiums and, in some cases, lesser benefits.

Thanks to major tensions in the middle east, oil prices are on the way up as well. Even if rising gasoline prices are temporary (some analysts say that barring trouble they will drop by fall) that and higher food prices seem to point to a retiree COLA next year. Again, the question is how much?

The COLA countdown means little to private sector retirees with pensions from their companies who don’t get inflation-adjustments. But for millions of Americans getting Social Security, civil service benefits, military retired pay or pensions from state and local governments, the increases are a way to keep pace with inflation.

COLA Changes

Congress is expected to look at several money-saving options this year that would reduce future COLAs for retirees by changing the way inflation is tracked. It is also expected to consider a plan that would deny any COLA to retirees until they reached age 62.

Under current rules people retired under the old CSRS program (which is most current retirees) get COLAs regardless of their age. FERS retirees don’t get COLAs until they are 62. The plan the House is expected to consider would treat FERS and CSRS retirees alike.

To reach me: mcausey@federalnewsradio.com

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