Federal Retirees and That 2010 COLA Increase

How much of a cost of living adjustment will federal retirees see in 2010? Perhaps there will not be one. That has not happened before but we are in unusual economic times.

How much of a bump in annuity payments will federal retirees get next January?

In January 2009, some federal retirees received more of an increase with their COLA adjustment than active federal employees received with their pay raise. The COLA increase for federal retirees was 5.8% back in January. That was the largest amount in 25 years. A chart within that article shows the increases for retirees over the past few years.

Active federal employees, on the other hand, did not get a 5.8% increase. On average, federal employees received a pay raise of 3.9% in January although those in the Washington, DC area received a 4.78% increase which was the highest increase in the country for the federal GS workforce.

Some federal retirees are already looking forward to their next increase in January. Comments or emails on this subject are along this line: “Any information on the 2010 COLA increase for retired federal employees? Most of the 2009 increase was taken up by the increase in health benefits costs so I am hoping we will actually get a bump up in 2010.”

Needless to say, this is not a normal year. We are actually experiencing a period of deflation as companies cut jobs, consumers cut spending, and the economy shrinks. At the same time, the federal government is about to go on an unprecedented borrowing spree and the American Secretary of State is traveling overseas telling the Chinese government, among others, why they should invest in U.S. Treasury securities.

So, if the 2010 COLA payment were to be determined today, there would not be any increase. The consumer price index used to determine the COLA payment is a negative figure of -4.5%. That does not mean that any federal retirees will see a 4.5% decrease in the monthly annuity payment. It does mean that federal retirees may not get an increase next year.

On the other hand, with the spending about to start from the stimulus bill, there is considerable speculation that we may start seeing a resurgence of inflation–perhaps a lot of inflation–although it will take awhile for that to seep through the economy. The COLA figure has been -5% in December so there was a whiff of inflation that has already entered into the COLA calculation. (The COLA figures are from the National Active and Retired Federal Employees Association website.)

Moreover, going back to 1975, there has never been a year in which there was not a cost of living adjustment for Social Security payments due to deflation (or a lack of inflation). The highest increase in a year was 1980 when it hit 14.3%. It has also been as low as 1.3% (in 1998 and 1986). (The annual COLA payment for retired federal employees is now pegged to the same consumer price index as for Social Security payments.)

There is even concern about an economic period of stagflation. The term is a combination of inflation and economic stagnation–a deadly combination that occurred in the United States in the 1970’s. In that era, our inflation rate peaked at 13.3%. Economic growth was slow and actually declined in 1974 and 1975.

The economy is going to continue to be volatile. In all likelihood, inflation will start moving up, at least moderately, later this year. But what we do know is that there will have to be a significant increase in inflation over the next several months for federal retirees go receive a COLA bump next January.

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