Another COLA Increase for Retirees Coming in January

The annual COLA increase for federal retirees is still going up and will become effective in January 2007.

The annual “pay increase” for federal retirees is continuing to rise.

Here is the good news: The annual COLA increase for 2007 is now on track to hit 3.6% next year according to the National Active and Retired Federal Employees Association.

The final figure for next year’s increase for retirees will not be available until next month. The COLA amount is calculated using the consumer price index for Urban Wage Earners and Clerical Workers which is compiled by the Bureau of Labor Statistics. The year-to-year increase is based on the federal government’s fiscal year which ends in September. The COLA is derived by comparing the index from September of the previous year.

The final figure could be higher after the inflation figures are released next month. The obvious bad news is that expenses are also going up. Chances are the final increase will not go up as much as a higher rate of inflation will take away from your monthly check when you take into account the overall rate of inflation for a variety of expenses from food to the cost of health insurance.

The annual increase is determined by computing the percentage increase in the Consumer Price Index (CPI) for urban wage earners and clerical workers from the third quarter average of 2005 to the third quarter average of 2006, as provided by the U.S. Department of Labor, Bureau of Labor Statistics.

To get the full COLA, a retiree or survivor annuity must have begun no later than December 31, 2005. If not, the increase is prorated under both the CSRS and FERS retirement plans. Prorated accounts receive one-twelfth of the increase for each month they received benefits. For example, if the benefit started on November 30th of this year, the prorated COLA would be one-twelfth of the full COLA.

Under the Federal Employees Retirement System (FERS), the COLA will be less than for employees who retired under CSRS. This amount to be paid to FERS retirees is computed from the same CPI comparison as CSRS. FERS and FERS Special Cost-of-Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements.

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. Follow Ralph on Twitter: @RalphSmith47