Last week I wrote about how retiree annuities are calculated. This time I want to explain what cost-of-living adjustments are, how they are determined, who gets them and when.

Cost-of-living adjustments (COLAs) are the government’s way of adjusting annuities to match increases in the Consumer Price Index for Urban Consumers (CPI-U). The CPI-U covers about 87 percent of our nation’s population. However, to more closely match the spending patterns of federal beneficiaries, BLS uses a subset made up of Urban Wage Earners and Clerical Workers, the CPI-W.

There are two pieces of good news about COLAs. When the CPI-W goes up, COLAs are added to the annuities of those retirees who are eligible to receive them. And if the CPI-W goes down, those retirees are held harmless. Their annuities aren’t reduced.

CSRS retiree COLAs

Regardless of the age at which you retire, if you have been on the annuity roll for at least 1 full year, you’ll be entitled to receive a full COLA in your January annuity payment. For every month you weren’t on the annuity roll, your COLA will be reduced by 1/12th in your first adjustment. Note: If you are a discontinued service retiree, you’ll only begin receiving COLAs in January of the year following the date on which your annuity begins.

FERS retiree COLAs

If you are a FERS retiree, with certain exceptions, you aren’t eligible for a COLA on your annuity until you reach age 62. Here are the exceptions: You’ll begin receiving a COLA regardless of your age if you retire under the provisions for law enforcement officers, firefighters and air traffic controllers or you are a military reserve technician whose separation resulted from a loss of military membership or rank because you became disabled after reaching age 50 and completing 25 years of service.

Regardless of your employment category, you aren’t eligible for a COLA on your special retirement supplement. Further, the SRS ends at age 62 when you are first eligible for a Social Security benefit. It can also be reduced or suspended if you have wages or employment that exceed the annual Social Security earnings limit.

COLA amounts

If you are a CSRS retiree, you’ll receive the full amount of any COLA. If you are a FERS retiree who is eligible for a COLA, the rules are different. If the CPI-W increases by 3 percent or more in any year, you’ll receive 1 percent less than that. If it increases by 2 to 3 percent, you’ll receive 2 percent. If it increases by less than 2 percent –which has been the case every year since 2013 – you’ll receive the same amount as CSRS retirees.

Next time I’ll fill you in on the rules governing health and life insurance in retirement.