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.
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.
Regardless of the age at which you retire, if you have been on the annuity roll for at least a 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.
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. (Note: The SRS can be reduced or suspended if you have wages or self-employment income above the annual Social Security earnings limit, and it ends at age 62, when you become eligible for a Social Security benefit.)
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 2 percent or less, you’ll receive the same amount as CSRS retirees.