Retiree COLA: 1.58 percent and counting

With six months left to go in the inflation countdown watch, it appears that federal, military and Social Security retirees are heading for a January cost of living adjustment of at least 1.58 percent. The exact amount of the 2019 inflation catch-up will be determined by the Consumer Price Index for the third quarter — July, August and September — of this year.

January 2019 prospects are not nearly so good for feds who are still on the job. White collar, nonpostal civil servants face the prospect of a 2019 pay freeze, meaning a 0 percent increase next year.

The exact size of the retiree COLA will not be known until mid-October. That is when the Bureau of Labor Statistics will have the final numbers on the rise in the CPI-W (consumer price index) for the third quarter of this year over the third quarter of the previous year.

COLAs and pay raises are often confused, sometimes on purpose. But if you look at the process and the final numbers it is clear they are very, very different critters.

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Whenever they get a pay raise many politicians, such as members of the House and Senate, often refer to them as a cost of living adjustment. The idea is to make voters think they are just keeping up with inflation. But that is not how it works in the real world:

A COLA is not a pay raise. A pay raise is not a COLA. Repeat as necessary.

Pay raises are determined by the president and Congress, based largely on political, fiscal considerations rather than the actual FEPCA law formula. The formula is supposed to keep federal pay city-by-city in line with the going rate for similar private sector jobs in that locality.

Both the Clinton and Bush administrations ignored that formula. During the Obama administration,  three years when workers did not get a January pay raise.

President Donald Trump proposed a pay raise for workers in 2018, but he wants to skip the 2019 civilian adjustment. Uniformed military personnel are in line for an increase.

COLAs are linked to the rise — but not fall — of living costs as measured by the BLS. During times of deflation federal annuities, including Social Security, do not go down. Retirees did not get any COLA in 2010, 2011 or 2016 because living costs, as measured by the government, were flat. Many groups argue that Uncle Sam should use a different yardstick that takes into account the higher costs to retirees for medical services, medicines, etc.

Bottom line: The federal pay raise, if any, will be determined by the president unless Congress officially sets and approves a higher number. The COLA for retirees will be determined by the market and the BLS yardstick. For a tipoff, keep your eye on gasoline prices this summer. If they go up, so likely will your January 2019 COLA.

 

Nearly Useless Factoid

By Amelia Brust

American Kevin Shelley set the world record for the most wooden toilet seats broken with the head in a minute — 46 — in Cologne, Germany, on Sept. 1, 2007.

Source: Guinness World Records