FedSmith recently received a question from a prospective retiree about the 2013 retiree cost-of-living adjustment (COLA) payment. The individual is planning to retire on 1/3/2013 and inquired if he would have to be off the employment rolls by 12/31/12 to receive the COLA.
The employee would not receive the adjustment in either situation. He would have had to retire no later than 11/30/2011 to receive the full COLA, and would have to retire by no later than 10/31/2012 to receive even a prorated COLA.
The above paragraph assumes that the employee is under the CSRS retirement system. Though the reader did not specifically state which retirement system the future retiree was covered by in the email question, I can assume it is CSRS as he plans to retire on 1/3/2013. (See The Best Day to Retire From Now Until 2020) If the employee were under the FERS system, in addition to having to be off the rolls by the above dates, the employee would also have to be age 62 to earn a COLA (unless they were a special category employee). (See The FERS Special Retirement Supplement (and Special Category Employees)
The federal retiree cost-of-living adjustment is based on the increase in the Consumer Price Index for Urban Wage Earners (CPI-W) from the third quarter of one year to the third quarter of the next year (i.e., from September 30 of one year to September 30 of the next). The increase in the CPI-W was recently estimated to be 1.5%. The retiree COLA is effective on December 1st. The December annuity payment is paid on the first business day of January.
Individuals who retire in any given year will have their first COLA prorated by the number of full months from their annuity commencement date to December 1st. For example, if I retired on June 30, 2012 my annuity would commence on July 1, 2012 and I would receive 5/12 of the adjustment (for July through November).
The CSRS COLA is based on the full increase in the CPI-W. The FERS COLA might trail the CPI-W by as much as 1%, though this year it appears that the two adjustments could be identical. The FERS COLA will be:
- Equal to the increase in the CPI-W if the CPI-W goes up less than 2%
- 2% if the CPI-W goes up between 2% and 3%
- 1% less than the increase in the CPI-W if the CPI-W goes up more than 3%
An employee who is “transFERS” (that is, who voluntarily transferred from CSRS to FERS at some point) will receive a CSRS COLA on the CSRS portion of his annuity and a FERS COLA on the FERS portion of his annuity (if he meets the applicable age requirement).
Also see How to Calculate Your 2012 COLA Payment for more information.
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