How Likely Are You to Receive a COLA Increase in 2016?

Will federal retirees receive a COLA in 2016? While inflation data is creeping up, it may not be enough to result in a COLA increase.

As we edge closer to October, when federal retirees and Social Security recipients learn how much their COLA will actually be in 2016, the answer to whether there will be a COLA increase in 2016 becomes a little more clear each month.

For June, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased by 0.38 percent. But, the bad news, the index has still decreased 0.4 percent over the last 12 months.

The CPI-W is the index used for measuring increases in the prices of consumer goods, including food and beverages, housing, clothing, transportation, medical care, recreation, and education.

In plain English, this means that there is still a chance for a COLA increase in 2016 but, if there is one,  it is likely to be small.

For those readers who like to follow this issue closely, the CPI-W figure for June 2015 was 233.804.  That is 0.19 percent lower than the average CPI-W for the third quarter of 2014, which was 234.242 (1982-84 = 100). The 2014 third quarter average is the reference figure for determining the 2016 COLA.

Federal retirees received a 1.7 percent COLA increase for 2015, a 1.5 percent boost for 2014, a 1.7 percent increase for 2013 and a 3.6 percent increase for 2012. The 2012 COLA increase was the first since January 2009 as the CPI index showed deflation rather than inflation. The increase in January 2009 was 5.8%–the highest COLA in 25 years at that time.

Some readers have commented that the CPI used for determining COLA increases for retirees is not accurate in that it does not reflect the actual costs or spending habits of older Americans. In fact, there is some basis for this concern. An index has been developed with different weighting for expenses, such as medical expenses as elderly people spend more on health care than younger consumers. The index is called the Consumer Price Index–Elderly (CPI-E). The CPI-E has been under review by the Bureau of Labor Statistics for about three decades but it is still considered an experimental program.

Under the regular consumer price index, medical care is not given as much weight as many other types of expenses. Retirees are more likely to be going to a doctor or a hospital than getting a college education so the price index does not necessarily reflect your real expenses if you are retired.

The use of the CPI-E index for calculating your Social Security or federal retirement annuity has not been authorized and it is unlikely to do so in the near future. The National Association of Active and Retired Federal Employees (NARFE) supports using the CPI-E for the simple reason that it would lead to higher COLA payments in the future. Since using the CPI-E would have a negative impact on the federal deficit, which is already growing by hundreds of billions per year despite record tax revenues for the federal government, Congress is unlikely to authorize a new system that would led to further increases in the federal deficit.

As of now, there would not be a COLA increase in January 2016. The results of data in the Consumer Price Index released in the next three months will determine the amount of the COLA.

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