Cost-of-living adjustments (COLAs) are one of the benefits that makes retirement financially viable for federal employees. However, there are some common fallacies about who gets them and when. In this article, I’ll point out three of them.
First, most employees think they’ll be automatically be entitled to a COLA to their annuities when they retire. However, that’s only true for two groups: all CSRS retirees and FERS “special category” retirees, such as a law enforcement officers, firefighters or air traffic controllers. If you are a regular FERS retiree, the amount of annuity you receive when you first retire will not increase until you reach 62.
Second, most employees think that FERS retirees, once they are eligible for a COLA, will receive the same COLAs as CSRS retirees. Some years that’s true, as it was this year when both groups got 1.6 percent. However, that’s not necessarily the case. When the increase is 3 percent or more, FERS retirees eligible for COLAs receive 1 percentage point less that CSRS retirees. When it’s between 2 and 3 percent, they’ll receive 2 percent. Only when it’s 2 percent or less will they receive the same amount.
While bills have been introduced in Congress to eliminate the disparity between CSRS and FERS COLAs, so far they haven’t gained any traction.
Third, most employees think they’ll receive the full amount as soon as they retire. That’s not the case. COLAs are payable proportional to the number of months you are on the annuity roll. For example, if you retired and were on the annuity roll in December 2020, you’d receive a full COLA in your January 2021 annuity payment. With each succeeding month you weren’t on the annuity roll, that COLA would be reduced by 1/12th.
More on COLAs – Federal Cost of Living Adjustments at ask.FEDweek.com
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