Will You Get a Larger Retirement Check in 2011?

Your expenses in retirement are higher now than they were last year. Does this mean federal retirees get a larger retirement check next year?

A frequent question we get from readers is: “Will I get a COLA increase next year?”

A closely related question is usually phrased along these lines: “If federal employees get a 1.4% pay increase next year, does this mean that retirees get the same increase?”

Here is a third question on the minds of some readers: “My health insurance, food costs, and related expenses are higher. Won’t this require Congress to give us a COLA increase next year?”

Here is a quick answer to all three questions: No.

There is not going to be a COLA increase in 2011. The amount of any increase to be paid to Social Security recipients (and federal retirees) is determined by a formula that is compiled by the Department of Labor. The National Active and Retired Federal Employees Association (NARFE) tracks the latest monthly figures as it is obviously of interest to their members. As of August 13, the amount of the COLA for next year comes to -0.74.

This does not mean that your monthly income will go down. It does mean that when the final figure for next year’s COLA is completed, you will not be receiving an increase in your retirement income.

Of course, Congress could jump in and do something, such as a one-time payment of $250 to make you feel better but don’t count on it. It is also possible that inflation could suddenly dramatically jump up in the next few weeks. That isn’t very likely either.

With regard to the question about active federal employees and your COLA increase, there is no correlation. There are some years in which federal employees receive a smaller increase than federal retirees. Last year, there was no COLA increase but federal employees received a small raise. (See COLA’s, Pay Raises and the Federal Community for an explanation.) While there is a pre-determined formula for arriving at any COLA increase, the annual federal pay raise is determined through the political process.

Normally, the political process moves along relatively quietly. That is not the case this year and there is a political firestorm of sorts surrounding how much federal employees are paid and how much their raise will be in 2011. (See The Federal Salary War) That could have an impact on the raise to be received by active federal employees but that is unlikely to have an impact on former federal employees who are not receiving a retirement check each month.

Finally, with regard to the comment that federal retirees have increasing expenses and this means there should be an increase in the COLA in 2011, there is no doubt that expenses common to federal retirees are increasing. And, in all likelihood, you are going to see a substantial jump in your health insurance premiums next year as well. (See 2011 Financial Questions (And Some Answers) for Federal Employees for more on health insurance.)

The reality is that the formula used for calculating the annual COLA payment does not accurately track the expenses for federal retirees. There is such a formula, and Congress is well aware of it. Another reality is that the federal deficit is now running about $1.3 trillion per year and Congress is not going to be inclined to add another large chunk of money to that figure. (See Why Your Costs May Be Up But Your Income Goes Down)

In short, if you are already spending more than you make, your financial situation will not improve in 2011. Chances are, your health insurance expenses will go up, your food costs will jump and the cost of travel and entertainment will increase. On the other hand, the cost of buying a new, big screen may be less expensive and the cost of a student loan may also be less expensive. Unfortunately, many of the factors in the consumer price index used to calculate your COLA do not apply to older Americans.

A 1994 movie entitled “Reality Bites” was a film about the financial and career challenges facing young Americans. In 2011, “Reality Bites” could be about the lives of retired Americans. Perhaps reality is not what many of us had envisioned but ignoring it will not improve your financial future so plan accordingly.

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