King-size COLA coming soon – for some!

Next month, the government is expected to announce the biggest inflation catch in years for most current federal and military retirees and for those receiving Social Security payments. The exact amount of the January 2022 adjustment will not be known until the government releases the level of the Consumer Price Index-W in October. With September data yet to be determined, many cost of living (COLA) process watchers are predicting the January COLA could be 6%. Maybe a little more. This is the good news.

The less good news is that the big COLA means inflation is here. Maybe for a long time. And for those benefiting from the Federal Employees Retirement System (FERS), this will trigger the first-COLA plan since 2019, when those who retired under the old Civil Service Pension System (CSRS) got a COLA of 2.8% – while FERS retirees got 2%. The COLA plan also started in 2012 when the pensions of the CSRS increased by 3.6% compared to the COLA plan of 2.6% for those of the FERS program. To add insult to injury, when Congress ended the CSRS plan in favor of the FERS, it also said that FERS retirees had to wait up to 62 years to get a COLA – even a plan!

Currently, most retired feds have retired under the CSRS program so that they get full COLAs. But the vast majority of people currently working for Uncle Sam, from forest rangers to scientists at NASA and CDC, fall under the FERS program. When they retire, they will be subject to the COLA scheme as soon as the cost of living exceeds 2%. While it doesn’t seem like much – especially to people in the private sector whose benefits are frozen in retirement – losing 1% a year to inflation can, in a short period of time, be a financial problem. This means that everything from food, shelter, and medication to Medicare Part B premiums is growing faster than the FERS annuity. Over a relatively short period of time, this erodes the purchasing power of a frozen or less complete COLA for retirees. And over time, that could force retirees to dip into their savings, like their TSP account, sooner than expected. And to get out more than the figure of 4% per year recommended by many experts. Additionally, it might persuade many still working people to shift more of their TSP nest egg into C, S, and I index funds which have much better track records than so-called ‘safe’ places like the F ( bond) or Fund C. In recent years, more federal governments have transferred more of their TSP allocation to Fund C. Currently, it holds more money than Fund G in the long term. To verify these numbers, Click here.

High inflation – something over 2% – creates major life-changing problems for people, even those who receive regular increases or retirement benefits – like the CSRS and Social Security – which are linked to the inflation. Another problem is that many experts don’t believe that the CPI-W, which determines the size of January COLAs, accurately reflects the higher costs for things like medicine faced by the elderly and retirees.

In the meantime, here is an overview of the COLAs from 1999 to today for those under CSRS and FERS. You can see that over time the purchasing power of FERS retirees decreases rapidly:

Almost useless factoid

Through Alazar Moges

The census is enshrined in the Constitution. Article I, Section 2 of the United States Constitution states that a count of the American population must be taken every ten years.

Source: Census office