A key perk of military retirement pay and Survivor Benefit Plan (SBP) payments is the yearly cost-of-living adjustment based upon the previous year's inflation rate.
COLA rates for the new year are typically announced in October, so we should be seeing the 2020 numbers any day now. What does that mean for you?
The annual federal COLA is applied to Social Security, military retirement pay, SBP payments, Department of Veterans Affairs disability compensation, Dependency and Indemnity Compensation payments, and federal pensions -- lots of things that retired military family members may be receiving. COLA changes become effective on Dec. 1 each year and show up in the end-of-month payment for December, because COLA-affected payments are made in arrears.
While we don't know exactly how much COLA will be this year, we can estimate based upon the formula used. COLA is determined by increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-W is calculated on a monthly basis by the Bureau of Labor Statistics.
Using last year's CPI-W, we can estimate that this year's COLA will probably be somewhere around 1%. This is below the long-term average, but a direct reflection of the increase in the cost of the goods and services that are tracked by the CPI-W. This has been a strange year price-wise, with the cost of certain items growing tremendously, and other prices falling just as fast.
Interestingly, federal and military pay increases are calculated differently, and may be higher or lower.
You don't have to do anything to get the COLA. It happens automatically, and you will see it in your payment at the end of December or beginning of January, depending on how your specific payments are paid. Any payments that are based on your pay or benefit will be adjusted accordingly, such as federal tax withholding or SBP premiums. However, this is a great time to check your Retiree Account Statement a little more carefully and make sure that all the right things are being taken out, in the right amounts.
A couple of notes on annual COLA:
If you opted for the Career Status Bonus/Redux retirement plan, with a lump-sum payment at year 15 and a reduced retirement multiplier, your COLA works differently. You get 1% less than the published COLA each year, unless the published COLA is less than 1%. If it is less than 1%, you get the full published COLA. CSB/Redux members have a one-time reset at age 62 to restore their military pay to the amount that it would have been under the regular High-3 retirement plan, but then return to the reduced COLA minus 1% annual adjustment.
If you retired between Jan. 1 and Sept. 30 of last year, your COLA will be prorated just this one year. This prevents you from getting the double benefit of the new pay raise plus full COLA in the first year.
If you are both a REDUX member and retired in the last year, you get a different prorated COLA adjustment based upon the REDUX COLA formula.
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