An increase in the cost of living adjustment (COLA) refers to the increase, if any, that federal retirees and Social Security recipients will receive in 2017. It does not refer to any pay raise that current federal employees will receive.
The 2017 federal pay raise is currently on track to be 1.6%, but any number of events in Congress or elsewhere in the political arena may occur to change or derail that annual pay increase for the federal workforce.
But what about federal employees who are retired?
Social Security benefits and federal retirement benefits did not go up in 2016. This was obviously bad news for retirees who rely on their monthly checks for a big part of their overall income.
No COLA increase resulted in millions of Social Security recipients, disabled veterans and federal retirees paying for increasing food and other costs with the same income they had in the previous year. To add insult to injury, medical costs and medical insurance also went up, so these extra costs also had to be absorbed with the same income as the year before. (See Your COLA Increase in 2016 Will Be: Zero)
Many readers probably do not realize that the bad news inherent in not receiving a COLA in 2016 will also impact the 2017 cost of living adjustment.
Here is why. When calculating the cost of living adjustment for 2017, the law governing the Social Security Administration requires the agency to compare the three-month average figure with the average for the same three months of “the last year in which a COLA became effective.”
There was not an increase in 2016. Therefore, “the last year in which a COLA became effective” will be 2014 and not the higher inflation figures from 2015. The 2014 third quarter average is the reference figure for determining the 2017 COLA. This is not good news for federal retirees.
As of May, the inflation rate is -0.87 percent below the 2014 third-quarter average rate used to calculate Social Security and CSRS annuity increases. And, because there was no COLA in 2016, the 2014 third quarter average will be the reference figure for determining the 2017 COLA.
While these figures are certainly not positive for a COLA in January, some inflation is starting to appear. So, there is still a chance for at least a small COLA in January 2017.
We will not know until October what the final figure will be for the 2017 COLA.
