For the third straight year, federal retirees, along with millions of Social Security recipients and disabled veterans can expect historically small increases in their cost of living adjustment (COLA) in January 2015.
Preliminary figures suggest the annual COLA will be less than 2 percent; the actual figure is likely to come in at around 1.7%. The federal government is scheduled to announce the COLA for 2015 on Wednesday. That is when the latest increase of consumer prices will be released. The annual COLA is based on the rate of inflation. The inflation rate is still below historical averages so far in 2014. There was not any increase in 2010 or 2011.
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.
Calculating the return for everyone involves more that just reviewing 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.
The price of gas has come down this year and that change has a ripple affect that lowers the COLA that will be announced this coming week. The cost of clothing is also less than a year ago. Overall food costs are up less than 3 percent, according to the government’s inflation report issued in August.
Automatic increases for Social Security beneficiaries was initiated in 1975. In the 1970’s, inflation was high and there was a lot of political pressure to regularly raise benefits based on the rate of inflation.
For the first 35 years, the COLA was less than 2 percent only three times. If the COLA is less than 2 percent next year, it would be the fifth time in six years that it has been less than 2%. The increase in 2014 was 1.5 percent. In 2013, it was 1.7 percent.
And, by the way, your federal employee health insurance is going up an average of 3.2% in 2015. (See About Those 2015 Health Insurance Premium Rates)