How Much Will the 2016 COLA Add to Your Income?

By on September 17, 2015 in Pay & Benefits, Retirement with 22 Comments

Image of a pile of dollar bills

A few readers have inquired about how much their retirement pay will go up when the 2016 cost of living adjustment (COLA) becomes effective.

The answer is that your income will probably go down instead of going up. The chances of any COLA increase in 2016 are highly unlikely.

At the same time, some retired federal employees will find that their health insurance and other expenses will be going up. Those federal retirees who have opted for Medicare instead of sticking with the federal employee health benefits program may also see a significant increase in their insurance premiums.  (See Medicare Part B Premiums Are Scheduled to Rise 52% in January)

With any luck, retirees who switch to a self-plus one insurance option instead of the family option will see at least a small decrease in their health insurance premiums.

With the second of three months of inflation data now published for public consumption, it is highly unlikely there will be any COLA change for civil service annuities, Social Security benefits or military retirement annuities.

The 2016 COLA for civil service annuities, as well as Social Security benefits and military retirement annuities, is determined by a pre-existing formula. Your 2016 COLA is determined by comparing the average of the July, August and September 2015 index figures to the average of the same months (the third quarter) from 2014. The percentage increase, if there is any increase, determines the COLA for the coming year.

In August, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) went down by 0.19 percent. This is 0.37 percent lower than the average CPI-W for the third quarter of 2014 and the July-August average is 0.28 percent lower.

Inflation will have to shoot up in the last month before the final COLA figure is announced in October in order to have a COLA increase in 2016. Anything is possible, but there is no apparent basis for predicting that will occur.

In short, federal retirees, Social Security recipients and those receiving a military retirement annuity cannot reasonably expect any increase in January.

What About a Pay Raise for Current Federal Employees?

Several readers have inquired about why it is “fair” or why the federal system allows current federal employees to receive a pay increase why retirees will not receive any increase.

We will leave it up to each individual to decide whether giving current federal employees a pay raise is fair. The reality is that current employees do not receive a COLA increase. Their pay increase, if any, is determined through the political process. In many years that works out to their advantage, but there have also been times when retirees received a COLA increase and current federal employees did not receive a pay raise. For example, in 2012, federal employees did not receive a pay raise. (See Pay Raises, Inflation and the Federal WorkforceBut, those receiving a COLA increase got a 3.6% pay hike.(See 3.6 Percent COLA for 2012)

For 2016, it appears that many current federal employees will receive a raise of about 1.3%, depending on their particular situation, while retirees will probably not receive an increase next year.

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

Tags:

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.

Top