A single-digit raise? It could have been worse

The increases due to federal workers and retirees in January probably won’t inspire many parties or celebrations. Or increase the sales of cars, homes or luxury items — like meat — in many places. But it’s a lot better than nothing, or what could be just ahead for feds.

Federal, military and Social Security retirees will be getting a 1.5 percent cost-of-living adjustment next year. Federal workers are in line for a 1 percent pay raise in January — their first increase in three years.

But given the fact that health premiums have gone up each year — the “average” increase for feds and retirees next year will be 4.4 percent — many people aren’t going to break out the champagne.

Still, the two increases are better than the proverbial sharp stick in the eye, and both could have been much lower.


Federal workers haven’t had a January pay increase for three years. Many have moved up the pay scale ladder either by getting a promotion or by virtue of having been in their GS grade long enough to qualify for a step increase worth about 3 percent. But for many, they’ve been paying this year’s health premiums at their 2010 pay rate.

Retirees got a 1.7 percent COLA this year, but it was the first inflation catch-up in two years.

While most people prefer times of low inflation, retirees whose benefits are indexed to it, often don’t appreciate the low raises because they think the government counts the wrong items in trying to determine the rise or fall in prices.

But there are a growing number of influential critics of the current system who think the COLAs it produces overstate inflation and fail to take into account the buying habits of people.

Both the White House and key congressional leaders have endorsed the idea of replacing the current inflation-measuring yardstick with the so-called “chained CPI.” CPI stands for Consumer Price Index, the measure the Labor Department uses to gauge living costs.

Friends and foes of the chained CPI agree it would do the same thing: Shave about 0.2 to 0.3 percent off each future COLA for federal, military and Social Security retirees. Backers say the switch would take into account that people downsize — going from steak to chicken — when prices are up. The same thing happens when health premiums go up more than pay raises. People move to a less expensive plan!

Opponents say the compounding effects of even slightly smaller COLAs each year would, over a lifetime in retirement, dramatically reduce future benefit payments by thousands of dollars for each person.

Given its do-nothing track record this year, there is a good chance the chained CPI proposal will go nowhere this session. But it’s out there and, if it were to happen, the year when retirees got a 1.5 percent raise might be considered part of the good old days.


Compiled by Jack Moore

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(Source: LiveScience)


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