Projections for 2026 COLA
What will the cost of living adjustment (COLA) be in 2026?
We will know the 2026 COLA percentage until mid-October. The 2025 COLA was 2.5%. That percentage was calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That index increased 2.59% over the previous 12 months before the 2025 COLA was announced. That increase was less than the 3.6% from 2024. This reflected a decrease in inflation has slowed down but it is still with us. This is a 3.5% increase from the third quarter of 2022. It is an increase of 3.6% over the last 12 months.
For comparison, the 2022 inflation was the highest experienced in the United States in about 40 years. This led to a 2023 COLA of 8.7%—the highest for federal retirees since 1981.
The Senior Citizens League’s latest projection for the 2026 COLA is 2.4%. That is an educated guess from an organization with a strong interest in the topic because of the impact on America’s senior citizens.
For most federal employees, the annual COLA increase is doubly important, as it impacts both the Social Security increase and the increase in the fixed annuity program for those under the FERS system.
Latest Inflation Date Reflecting May 2025 Data and How CPI-W Changed
In May, inflation Rose to 2.4%. This was in line with economic projections.
Prices excluding food and energy categories, the core measure economists track to better capture the underlying trend of inflation, went up 2.8%. This was below projections for a 2.9% increase in the May data.
For federal retirees (or those close to retirement) the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the most important statistic in the inflation report. This index increased 2.2% over the last 12 months to an index level of 314.839. For the month, the index increased 0.2%.
The average CPI-W for the third quarter of 2024 was 308.729. This represents a 1.98% increase. In April, the month’s increase was 1.79% over the third quarter of 2024. The COLA is calculated 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.
Why Latest Data is Important to FERS Retirees
Keep in mind, we will not know the final 2026 COLA until mid-October. As of today, the increase in the COLA would be less than 2%. My projection would be that the final COLA will be higher than 2%, as predicted by the Senior Citizens League.
Here is how the actual COLA is determined and why the 2% figure is important.
Calculating the COLA for FERS
- For FERS retirees, if the increase in the CPI is 2% or less, the COLA is equal to the CPI increase.
- If the CPI increase is more than 2% but no more than 3%, the Cost-of-Living Adjustment is 2%.
- If the CPI increase is more than 3%, the adjustment is 1% less than the CPI increase. The new amount is rounded down to the next whole dollar.
- To get the full COLA, a retiree or survivor annuitant must have been in receipt of the payment for a full year.
- If a person has not received the payment for a full year, the increase is prorated. Prorated accounts receive one-twelfth of the increase for each month they have received benefits.
- 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% of their high-3 average salary.
- Also, under FERS, if you have a CSRS component, the component is subject to the CSRS COLA calculation.
In fiscal year 2022, 56% of federal annuitants received benefits under CSRS. This included 80.1% of survivor annuitants. 44% of federal annuitants received benefits under FERS. This included 19.9% of survivor annuitants.
Why Is the COLA Different For FERS and CSRS Retirees?
Federal employees will frequently see articles bemoaning the difference in the COLA calculations between CSRS and FERS retirees. CSRS employees get a higher COLA than FERS employees do and efforts are consistently made in Congress to “correct” this differential.
Why are the calculations different?
When FERS was created in 1987, federal employees under FERS were authorized to receive benefits CSRS employees did not receive. Because of this, Congress created a system of calculating the COLA in different ways as receiving the full COLA in years when inflation ran higher was not necessary since other benefits were already in place.
Under FERS, federal employees get the following:
- Matching funds from the federal government (up to 5%) to invest in their Thrift Savings Plan (TSP) accounts
- Social Security payments
- Annuity payments in retirement
FERS employees receive an automatic 1% contribution to the Thrift Savings Plan. The government contributes 1% of the employee’s basic pay to their TSP account automatically, regardless of whether the employee chooses to contribute.
In addition, the federal government matches employees’ contributions up to 5% of their basic pay:
- 100% match on the first 3%
- 50% match on the next 2%
- Total possible match: 4%
Total Potential Government Contribution: Up to 5% (1% automatic + 4% matching)
Also, Social Security and TSP benefits are portable. The benefits accompany the employee if a federal employee leaves a federal job. In other words, FERS allows federal employees to leave a federal job without giving up some of what they have earned.
This is why the COLA calculation is different for the two retirement systems.
