The count toward the January 2022 federal retirement COLA stands at 5.1 percent with three months remaining in the count, following an increase in June of 1.1 percentage points in the inflation index used to set the adjustment.
Barring a significant drop in the remaining months in that index, it appears the COLA will be the largest since 2009, when those retired under CSRS received a 5.8 percent boost while those retired under FERS who are eligible for COLAs (generally, not until age 62) received 4.8 percent due to the reduction that applies when the base COLA exceeds 3 percent.
In the intervening years, the largest COLA was that of 2021, 3.6 and 2.6 percent, while others ranged from 0 (in three years in which the inflation count was in negative territory) to 2.8 percent under CSRS and 2 percent under FERS—due to a different capping mechanism that applies to FERS if the base COLA is between 2 and 3 percent—in 2019.
Cost-of-living-adjustments (COLAs) are effective on December 1 of each year and are applied to the annuity payments made the following month. COLAs for those retired less than one year are prorated according to the date on which they retired. If you retire in January, your first adjustment will be made in January of the following year and will be for 11/12ths of the COLA amount. If you retire in February it will be 10/12ths, and so forth. Future COLAs will be for the full amount.
COLA Based on Consumer Price Index
The COLA is based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI/W) average of the third calendar quarter of one year to the next. If the inflation count finishes negative, benefits are frozen but not reduced. Also, in that situation the starting point for the next COLA count remains the same.
Note: Social Security COLAs follow the same formula except that a full Social Security COLA is paid even to someone who has drawn benefits for less than a year.