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.
It now appears increasingly less likely that there will be a COLA increase for federal retirees in January 2016. The reason is because the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is about the same in July as it was in June. The CPI-W is the index used for measuring increases in the prices that are used to determine how much the COLA increase will be, if any, in January 2016.
As determined by the relevant data from the Bureau of Labor Statistics (CPI-W) in October 2014, federal retirees received a 1.7 percent cost-of-living adjustment (COLA) to their civil service annuities beginning in January 2015. Social Security benefits and military retirement annuities increased by the same amount.
The CPI-W has actually declined 0.3 percent over the last 12 months. To calculate the 2016 COLA, if any, the average of the indices of July, August, and September 2015 will be compared with the 2014 third quarter average. The percentage increase, if any, determines the COLA some federal retirees will receive next January.
The formula used for determining the COLA increase is complex. Here is how your cost of living increase is calculated according to the Office of Personnel Management:
- For Civil Service Retirement System (CSRS) or Organization and Disability Retirement System (ORDS) benefits, the increase percentage is applied to your monthly benefit amount before any deductions, and is rounded down to the next whole dollar.
- For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar.
To qualify for the pay increase in your retirement check, a retiree or survivor annuitant must have been receiving a payment for a full year. If you have not been receiving such a payment, the increase is prorated. Prorated accounts receive one-twelfth of the increase for each month they received benefits.
We will not know until mid-October if there will be a COLA increase next year. As of today, if there is an increase, it is likely to be very small.
As noted in a previous article, current federal employees (who do not receive a COLA increase) are likely to receive a 1.3% increase in 2016 regardless of what happens for federal retirees. (See 2016 Pay Raise One Step Closer to Becoming A Reality)