When they start planning for retirement, federal workers — people at the Pentagon, FBI agents, letter carriers, astronauts, NIH scientists, park rangers and NASA rocket scientists — have a problem. It’s one most folks in the private sector don’t have, but wish they did. It’s the automatic annual inflation catch up that’s almost exclusive to federal retirees.
Most private sector workers, if they even have a company-pension plan, don’t get cost-of-living adjustments when they retire. Ever. The pension they got the first month after retirement is the same $$$ benefit they get 10, 20 or 30 years later. But prices do go up. The absence of inflation protection is why private retirees lean more heavily on income from their 401k plans. If they had one, and if they participated in it.
Like people who get federal CSRS and FERS retirement benefits, people under Social Security also get COLA catch ups. But the average Social Security benefit is much lower than the average CS benefit. And there is a cap on how much the person under Social Security can receive, regardless of how high his or her income was. There is no limit on federal CS retirement benefits except that after just over 41 years of service the feds starting benefit is “capped” at 80 percent of final salary.
The importance of a regular COLA is that it allows people who get them (whether full under CSRS or slightly reduced under the FERS program) to keep up with inflation. And the compounding effect of regular COLAs, like pay raises, is tremendously important. But in recent years, COLAs (and pay raises) have been fewer and further between:
From January 2010 through last January, federals received a 1.5 percent raise in 2010, zero in 2011, zero in 2012, zero in 2013, one percent in 2014, one percent in 2015 and one percent this year. Not much but better than the proverbial sharp stick in the eye.
During the same period, Janury 2010 through January 2016, federal retirees got zero this year, 1.7 percent in 2015, 1.5 percent in 2014, 1.7 percent in 2013, 3.6 percent in 2012, and zero in both 2011 and 2010.
So what’s on tap, for workers and retirees in January 2017?
The White House has proposed a 1.6 percent increase for white collar (nonpostal) federal workers. There are efforts being made in Congress to sweeten that amount but that is a very, very long shot.
For retirees, it’s a matter of watching the monthly changes (if any) in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It is the yardstick the government uses to measure ups and downs in inflation for a variety of people, including federal, military and Social Security retirees. Any COLA is based on the rise in living costs from the current third quarter of the year (July, August, September) over the previous years’ third quarter. If it doesn’t go up, there is no COLA.
Here’s how the National Active and Retired Federal Employees website explains it:
The CPI-W increased by 0.53 percent in April, 2016.
The new CPI-W figure for April 2016 was 233.438, 0.34 percent lower than the average CPI-W for the third quarter of 2014, which was 234.242 (1982-84+100). Because there was no COLA in 2016, the 2014 third quarter average is the reference figure for determining the 2017 COLA.
Bottom Line: If you are confused, welcome to the club. If you don’t have Stephen Hawking’s private number, let’s put it this way. It is still possible that retirees will get a COLA in 2017. But don’t count on it. Only something like a big jump in oil prices (which nobody but the oil companies want) this summer could trigger a retiree COLA in January.
So if you are planning to retire to get a COLA, rather than a raise, you might want to wait awhile before you put in your papers.