Retirement May Pay More than Working

By on June 15, 2006 in Current Events, Retirement with 0 Comments

Does inflation have an impact on your next raise?

If you are a retired federal employee, it certainly will.

For the second year in a row, federal retirees may get a larger increase than active federal employees. An average pay raise of 2.7% appears likely for federal employees in January. The House of Representatives passed a bill this week authorizing the 2.7% for federal employees as part of the appropriations bill for the Departments of Treasury and Transportation.

Last year, federal employees got an average pay raise of 3.1%. Federal retirees (many of them, at least) did better than that. They got a raise of 4.1%. (See 4.1%! Federal Retirees Get Bigger Than Expected Increase)

A similar scenario is unfolding again this year. According to the National Active and Retired Federal Employees Association (NARFE), federal retirees are on track for an increase of 2.9% (Check out their figures here.) That figure is likely to go up from there before the final figure is calculated after the end of the third quarter. In other words, the final figure for retirees will be determined in October after the inflation figures are calculated through September 30th. It is possible, even likely, that the final figure will be somewhere north of 3%.

Not all federal retirees will get the full amount of the increase. For a more detailed explanation of how the increase was applied for retirees last year, check out this benefits letter from OPM.

Will the inflation tally through September determine the final pay raise for active federal employees? In a word, "no." There is a predetermined formula for calculating the increase for federal retirees based on the rate of inflation. Active federal employees are not subject to the same formula. In reality, the decision of how much of an increase to give each year (if any) for current federal employees is a decision made through the political process.

So, if you are a retired federal employee, especially those under the CSRS system, you can smile all day thinking about the extra money you will be getting next year in your pension check. You are even justified to call on the colleagues in your former office to tell them the good news. Don’t be too surprised if they do not display the same cheerful reaction to your good news.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.