Inflation and Recent COLA Figures
Last month, when the inflation rate for the third quarter of 2024 was released, we learned the 2025 cost of living adjustment (COLA) for federal retirees would be 2.5%. Retired federal employees under FERS will see a 2% increase in their annuity payments. The Social Security payments for FERS retirees will receive the full increase.
Some retirees will probably be disappointed with the 2024 increase. Way back in 2023, the COLA was 8.7%— the highest in more than 40 years. While the COLA did not go up as much as most prices at the gas pump or for most goods in stores, it was still a significant increase.
The 8.7% increase followed a big increase in 2022—when the COLA was 5.9%—that was the highest in 40 years at that time.
It is probably good news that the 2024 COLA will only be 2.5%—considerably less than it was in recent years. The lower COLA means that the rapidly growing inflation rate has receded.
The October inflation data is the start of a new year. We will not know the amount of the 2026 COLA until the inflation data for September is released in October 2025.
CPI-W Up Slightly
According to the Bureau of Labor Statistics’s latest data release, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.4% over the last 12 months. In October, the index increased 0.1%.
The CPI-W is the index on which the annual COLA amount is based.
The all-items index increased by 2.6% from a year earlier. That increase marks a pickup in the pace of inflation from September, when prices were up 2.4% for the year.
Core prices, which exclude volatile measurements of gasoline and food, were up 0.3% on a monthly basis in October and 3.3% from a year ago. This is unchanged from last month’s data.
Stock Market and the Election
Inflation was a major factor in our recent election. Voters’ concerns about the economy and consumer prices helped former President Donald Trump be elected for a second term of office.
Consumer prices are about 20% higher than they were when Biden took office. While inflation is down significantly from what it was several years ago, the problem for the average consumer is that prices for many things, including groceries, are much higher than they were four or five years ago.
Most federal employees have money in the Thrift Savings Plan (TSP). So, while the annual COLA is important for retirement income, the TSP provides a financial cushion and a significant source of income for many federal employees and retirees.
2024 has been a boom year for the stock market.
After the election on November 5th, stock prices jumped higher. The S&P 500 index (the index on which the C Fund is based) jumped about 4% after the election. Even with the market taking a breath on November 12 when prices went down, the C Fund has increased more than 3.5% since November 5th.
The C Fund is up 26.88% so far in 2024 and up 4.92% just in November through the market closing on November 12th. While no one knows what will happen in the next few months with stock prices, for now at least, the financial picture of TSP investors is very good.
COLAs vs. the Annual Pay Raise
We now know what the COLA will be for 2025 payments. The annual pay raise for federal employees will not be finalized until later this year when locality pay rates are issued and the final stamp of approval is put on the 2025 pay charts.
Readers often ask which is better: the annual pay raise or the COLA? Here is a chart showing how these two compare over the years.
| Year | Pay Raise % | COLA % |
| 2010 | 2 | 0 |
| 2011 | 0 | 3.6 |
| 2012 | 0 | 1.7 |
| 2013 | 0 | 1.5 |
| 2014 | 1 | 1.7 |
| 2015 | 1 | 0.0 |
| 2016 | 1.6 | 0.3 |
| 2017 | 2.1 | 2.0 |
| 2018 | 1.9 | 2.8 |
| 2019 | 1.9 | 1.6 |
| 2020 | 3.1 | 1.3 |
| 2021 | 1 | 5.9 |
| 2022 | 2.7 | 8.7 |
| 2023 | 4.6 | 2.7 |
| 2024 | 5.2 | 3.2 |
| 2025 | 2 | 2.5 |
| Average | 1.88 | 2.47 |
| Total: | 30.1 | 39.5 |
Of course, as some readers like to point out (probably after they have retired), while the COLA is often higher than the pay raise, the pay raise does not take into account promotions or within-grade increases that current employees may receive during a year.
Based on the latest data released by the Office of Personnel Management, we know that the annual average federal salary is now $106,382. In 2010, the average annual salary was $74,307. That is an increase of $32,075 in 14 years or an increase of 43.16%. The annual salary figures are a more accurate reflection of pay rates as they reflect increases other than an annual pay raise.
