Fedweek

COLAs are effective on December 1 of each year and are applied to the annuity payments made the following month. Image: 3d imagination/Shutterstock.com

Through eight months of the count toward the January 2023 federal retirement COLA, the count stands at 7.3 percent, following an increase in May of 1.2 percentage points in the inflation index used to set the adjustment.

That figure already is well above the COLA paid in January of this year—5.9 percent under CSRS and 4.9 percent under FERS for those eligible (generally not until after age 62)—and puts the adjustment on track to be the largest since the 8.7 percent of 1982, before the FERS system existed. With the final figure not to be determined until October with release of the inflation figures for September, it is possible the amount will exceed that number, which was the largest payout since automatic annual inflation adjustments for federal annuities began in the mid-1960s.

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Meanwhile, the IRS had increased from 58.5 to 62.5 cents per mile the mileage reimbursement rate used for certain tax purposes, effective in July. The GSA sets the rate applying to federal employees using personal vehicles for official travel to match that IRS rate, although it is not required to. Mileage rates typically are set on a calendar year basis but they can change during the course of a year due to changes in fuel costs.

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.

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See also,

Your Retirement: A Slope or a Cliff?

Bid to Equalize CSRS, FERS COLAs Gets Boost in Senate

FERS Retirement Guide 2022