And you’re still working because…

It could be a long time before federal workers see another January pay raise. But for retirees, things are looking up.

Although the year and amount of the next federal pay raise is still up for grabs, things are looking up for retired feds.

Retired government workers, military retirees and people who get Social Security benefits are in line for a cost-of-living adjustment next year.

Halfway through the COLA countdown, retirees are looking at a January 2013 inflation adjustment of 1.4 percent. If living costs rise between now and September, the COLA increase — which is automatic — could be even higher.

Pay raises, as most people know from experience, are fiscal and political decisions made by the president and Congress. The Simpson-Bowles Commission, a panel setup by President Barack Obama, recommended a number of ways government could save money, including a three-year federal pay freeze. Although elected officials failed to act on any of the other proposals, the White House proposed a two-year freeze, and Congress happily went along.

Many federal workers still got within-grade pay raises (and some promotions) over the last two years, but their January adjustments were frozen in 2011, and again this year. Obama has proposed a 0.5 percent pay raise for next January, but insiders doubt the White House will push it very hard. Many observers believe the pay freeze will be continued, with the only issue being whether it will be another year, two years — or even three.

But COLAs are different. They are based on the rise in inflation as measured by the Bureau of Labor Statistics’ Consumer Price Index. Because prices dropped during the recession, retirees didn’t get raises in 2010 or 2011. There has been talk among politicians about changing that measurement so that future COLAs would be 0.4 percent lower than under the current system.

But, for now, the deal is this: If inflation, as measured by the CPI, goes up between the third quarter (July through September) of the current year and the third quarter of the previous year, then retirees get raises. Feds are protected, because people who get Social Security — which is politically untouchable, especially in an election year &mdash could or would be impacted, too.

The exact amount of the January 2013 COLA increase, if any, won’t be known until CPI data for September is announced in early October. If even modest inflation continues, then there will be a raise. But if something triggers a period of deflation, then it could derail any increase.

Many people measure inflation based on what they are buying and paying (or not buying or paying, as the case may be). For young people, that might mean vacations or kid products. For others, it might be the price of oranges, or new and used cars. Or the price of orthopedic shoes. But the CPI is based on price changes in a market basket of goods — some you may use, some you may not.

Bottom line: Regardless of your individual measure of true inflation, the number that counts, at least for now, is the CPI. Stay tuned.


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