Calculating the 2021 COLA
The COLA for the coming year (January 2021) is determined by comparing the change in the CPI-W from year to year, based on the average of the third-quarter months of July, August, and September.
The new CPI-W figure for August 2020 was 1.36 percent higher than the average CPI-W for the third quarter of 2019. The CPI-W figure for July 2020 was 0.97 percent higher.
1.2% COLA in 2021?
We still do not know what the final figure will be that is necessary for calculating the COLA to become effective in December and paid in January 2021. A reasonable estimate is that the COLA that will impact federal retirees and Social Security recipients will be about 1.2%. This missing part of the puzzle for next year’s COLA will be released in October. For this year, the final figure will be released on October 13th.
The Social Security Administration (SSA) calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year. The reason the fourth quarter is not used is because fourth-quarter numbers are usually not available until mid-January. SSA has to make its COLA adjustment on January 1.
Calculating COLAs is Different for FERS and CSRS
The 2020 COLA was 1.6% for Civil Service Retirement System (CSRS) annuities and Social Security benefits, and it was also 1.6% for Federal Employees Retirement System (FERS) retirees.
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 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.
Here are the recent COLA increases by year:
- 2020: 1.6%
- 2019: 2.8%
- 2018: 2.0%
- 2017: 0.3%
- 2016: 0%
- 2015: 1.7%
- 2014: 1.5%
- 2013: 1.7%
- 2012: 3.6%
- 2011: 0%
- 2010: 0%
- 2009: 5.8%
A COLA Is Not the Same as a Pay Raise
Keep in mind that the cost-of-living-adjustment (COLA) is not the same as the pay raise for the current federal workforce. The amount of the pay raise for current federal employees will be determined later this year.
While the COLA may have an indirect impact on the final amount of any pay raise, the two figures are applicable to different groups and the decision on any amount is determined in different ways.