COLAs are effective on December 1 of each year and are applied to the annuity payments made the following month. Image: Andrey_Popov/Shutterstock.com
By: FEDweek Staff
Three-quarters of the way through the measuring period for the January 2023 federal retirement benefits COLA the count stands at 9 percent, following a 1.6 percent increase in June in the inflation index used to set that COLA.
Barring a change in direction in inflation—which has risen in each of the nine months of the count so far—the COLA is on track to exceed the 8.7 percent of 1982, which was the largest payout since automatic annual inflation adjustments for federal annuities began in the mid-1960s.
It would follow the 5.9 percent paid at the start of this year for those retired under CSRS and the 4.9 percent for those retired under FERS who are eligible for COLAs (generally not until reaching age 62)—increases that themselves were the larges since the 1982 increase, which occurred before the FERS system even existed.
Cost-of-living-adjustments (COLAs) are effective on December 1 of each year and are applied to the annuity payments made the following month. COLAs for those retired less than one year are prorated according to the date on which they retired. If you retire in January, your first adjustment will be made in January of the following year and will be for 11/12ths of the COLA amount. If you retire in February it will be 10/12ths, and so forth. Future COLAs will be for the full amount.
COLA Based on Consumer Price Index
The COLA is based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI/W) average of the third calendar quarter of one year to the next. If the inflation count finishes negative, benefits are frozen but not reduced. Also, in that situation the starting point for the next COLA count remains the same.
Note: Social Security COLAs follow the same formula except that a full Social Security COLA is paid even to someone who has drawn benefits for less than a year.
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See also,
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Installments vs. Annuity: Using Your TSP for Regular Income
Retiring from a Federal Job – Getting Started
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