Active federal employees may not know how much their raise will be until later this year or, perhaps, sometime next year. When it becomes final, if it is passed after the year has already started, it is likely that the raise will be retroactive but no one will know until the process is finally completed.
But federal retirees receive a cost of living allowance. It is calculated according to a formula that anyone can track and the information is issued about the same time every year telling retirees the amount of their 2008 “raise”.
That is the good news. Here is the news that some retirees will view with mixed emotions: The majority of federal retirees, along with all Social Security recipients, will receive an increase of 2.3 percent. It will become effective on December 1, 2007.
The news is somewhat different for employees under the FERS retirement system. Eligible federal civilian annuitants who retired under FERS will receive a 2 percent COLA in their FERS checks, along with the 2.3 percent hike in their Social Security payments.
You may be thinking that an increase of 2.3 percent does not cover your cost of living increase in the past year, and you are probably right.
Anyone who has shopped for a TV set, furniture or various household goods in recent years has noticed that prices are actually dropping for many items. Workers in China, Eastern Europe and other parts of the world work for wages that are much lower than those in the United States. Our manufacturing jobs are going overseas by the millions because it is cheaper and easier in many cases to build products overseas. The result is that we pay less for these new products than if we were building them within our own borders.
This has been a major factor in keeping our annual inflation rate at a low level. If you are in the market for a new widescreen TV in high definition, a luxury car from Japan or new furniture built in China, the drop in prices has been dramatic.
The problem is that if you are 70 and living on an income that is not increasing more than 2 or 3 percent a year, these falling prices may not have much impact on your true cost of living. Many retirees have paid off their mortgage and are living in a house that is fully paid for. Your focus is more likely to be on the cost of health care, prescrpition drugs, health insurance, property taxes, and groceries instead of buying a brand new 60 inch HDTV to celebrate your latest promotion.
In other words, your real cost of living is probably going up much higher than the COLA is going up.
Active federal employees are likely to get a raise of 3.5% but that is not definite. It could turn out to be an average of 3% depending on what happens in Congress and discussions with the President. You can compare the probable difference in your check for 2008 by checking out our estimate of the 2008 federal pay raise. Our new tables will give you an estimate based on whether the increase is 3% or 3.5%.