Retirees whose benefits are pegged to the Consumer Price Index will see their January annuity checks increase 2.3 percent (before taxes) if they are under the old Civil Service Retirement System. CSRS covers most retired feds but only about one-quarter of those still working.
Feds retired under the newer FERS retirement program will get a so-called Diet COLA this month. It will be worth 2.0 percent. The COLA for FERS retirees doesn’t kick in until they reach age 62.
The January inflation-catch-up doesn’t help most private sector retirees with company-backed pension plans. Private firms say they can’t afford to pay for COLAs for 10, 20, or 30 years after people retire. But the January increase will go to about one in every six Americans if they get either Social Security benefits, or military retired pay. They will get the full 2.3 percent this month.
COLAs are a life-saver for many individual retirees. And they pump millions of extra dollars into the Washington-Baltimore area which has an unusually high concentration of retired federal workers and military retirees. But they often go unnoticed as local merchants, and the news media, concentrate on the size of the federal pay raise.
The COLAs, unlike federal pay raises, are automatic and set by law. The January raise for retirees is based on the rise in the CPI-W from the current third quarter (that is July, August, September) over the third quarter figure for the previous year. So it is a 12-month calculation, but not a calendar year calculation. For details on it check out the National Active and Retired Federal Employees update by clicking here.
ROTH IRAs For Everyone
Most financial planners believe that the Roth IRA is the best gift Congress ever gave to investors and taxpayers. Unlike traditional IRAs, which are tax deferred, people who invest in ROTHs pay in after-tax money. But when they withdraw their money, all of it is tax free! In theory someone could make a $10,000 investment that turned into a million bucks but, if it was in a Roth IRA, the million would be tax-free income. The problem with the Roth IRA is that people (feds included) who make “too much” money can’t invest. But that’s going to change in the year 2010 which is just around the corner.
Financial planner Edward A. Zurndorfer says that beginning in 2010, anybody can fund a Roth IRA regardless of income. And there is also a tax-break for people who want to roll over a traditional IRA into a Roth IRA.
For more from a July, 2006 column by Ed about the Alternative Minimum Tax, click here.
Nearly Useless Factoid
If you’re wondering why no one can sit still in the cubicle farm today, there may be an explanation. In order to ensure good luck though the new year, many people include or feature the following on the January first menu: pork, cabbage, sauerkraut, black-eyed peas, lentils, fowl, fish, herring (either pickled or creamed), greens, buckwheat noodles, doughnuts, and more. As anyone named Coach would say, “walk it off.” And welcome back.