Calculating the 2015 Cost of Living Adjustment (COLA)

How much will inflation add to the amount added to your retirement annuity or Social Security payment in 2015? We will not know until sometime in October but here are the latest calculations.

Would you like to see an increase of 1.69% in your retirement annuity in January 2015? That may happen or, perhaps, the final figure could even be higher.

The 1.69% is based on the latest figures from the Consumer Price Index (CPI-W) which is the most relevant inflation index for most federal retirees. If you collect Social Security, an annuity under the federal government CSRS or FERS retirement systems, CPI-W is how the cost of living adjustment (COLA) will be determined for your retirement check in January 2015.

The cost of living increase for federal retirement annuities, military retiree annuities and Social Security payments are determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index is compiled by the Bureau of Labor Statistics (BLS). The CPI-W is the current index used for measuring increases in the prices of consumer goods throughout the economy. It includes prices on all consumer goods, including food and beverages, housing, clothing, transportation, medical care, recreation, education, communication, and more.

Bad News in the COLA Increase

The COLA increase is not all good news though as it is based on consumer prices going up–often going up faster than the COLA increase. The seasonally-adjusted price index for meats, poultry, fish, and eggs hit an all-time high in May, according to data from the Bureau of Labor Statistics (BLS). “The index for meats, poultry, fish and eggs has risen 7.7 percent over the span [last year],” says the BLS. “The index for food at home increased 0.7 percent, its largest increase since July 2011. Five of the six major grocery store food group indexes increased in May.”

As determined in October 2013, in January 2014, there was an increase of 1.5% for Social Security and CSRS annuities. We will not know how much the actual increase, if any, will be in January 2015 until mid-October of this year so there are several months of calculations that will go into the final figure for next January.

Of course, calculating the return for everyone is not as simple as looking at the BLS calculations. Federal Employees Retirement System (FERS) and FERS Special Cost-of-Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements. FERS disability retirees get the adjustment, except when they are receiving a disability annuity based on 60 percent of their high-3 average salary. Also, under FERS, if you have a CSRS component, the component is subject to the CSRS COLA calculation. FERS survivors receive the FERS increase on their entire annuity, even where component service is involved.

Readers who receive insurance benefits under the Federal Employees Compensation Act (FECA) received a 1.5 percent COLA in March 2014. FECA COLA’s are determined using a different calculation than the COLA for other federal retirees. Benefits awarded under the Federal Employees Compensation Act to individuals with work-related injuries or illnesses, are adjusted according to each calendar year’s percentage change in the CPI-W (rather than as measured by the change from the highest previous third quarter average).

Looking ahead to the 2015 COLA for FECA benefits, the May 2014 CPI-W figure is currently 2.20 percent higher than the December 2013 CPI-W figure.

The Chained CPI

Readers frequently ask about the “Chained CPI” and how this would impact their retirement income. While the chained CPI has been received as a popular money saving alternative by members of both political parties, this is a Congressional election year. We have not read much about the chained CPI impacting retirement pay increase in 2015 and it is unlikely to be implemented for 2015. Look for it to become another consideration in the future though, perhaps as early as next year. (See The “Chained CPI” and Your Federal Retirement Package)

What About the Active Federal Employee Pay Raise?

Keep in mind that the cost of living payments referenced in this article only refer to federal retirees. A pay increase, if any, for current federal employees will be determined through the political process and is separate from the COLA references in this article. While most readers indicate they would be happy with an increase of 3.3%, and legislation has been introduced that would provide a 3.3% pay raise, that legislation is unlikely to be passed. (See Hawaii Senator Wants 3.3% Pay Raise for Federal Employees and Majority of Users Would Be Happy With a 3.3% Pay Raise)

A raise of less than 3.3% is much more likely. It is also likely that federal retirees will receive a higher cost of living adjustment than any raise to be received by federal employees in 2015. While we do not know what will happen with regard to the federal pay raise for 2015, it is quite possible that federal employees will receive a 1% pay raise again in 2015. (See Obama to Propose 1% Pay Raise for Federal Workers)

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