1 percent pay raise; 1.9 percent COLA. Go figure!

Despite higher prices at the pump, overall living costs rose only slightly last month. For federal-military-Social Security retirees, that points to a 1.9 percent cost of living adjustment in January.

If living costs increase between now and the end of September, the inflation-indexed COLA for retirees will be higher. If they remain steady or decrease, the COLA will reflect that difference.

Federal-military-Social Security retirees got a 1.5 percent COLA or inflation-catchup at the beginning of this year. That compares to the 1 percent raise that federal workers got in January. It was the first pay raise in three years for workers.

Although frequently confused (sometimes on purpose for political reasons), pay raises and retiree COLAs are two very different critters.

Raises for active duty personnel are set by Congress and the White House usually based on fiscal and political considerations. COLA increases for retirees are indexed to inflation as measured by the Bureau of Labor Statistics via the Consumer Price Index.

There are a number of CPIs measuring different things. The government uses the CPI-W to determine inflation, if any, for retirees. Although many people disagree with the items in that CPI “market basket” of goods and services, it is the measure that is used.

Unless and until…

Congress and the White House have proposed changing the way inflation is measured. Switching to the so-called Chained CPI would, they say, gives a more accurate picture of both inflation, and the way retirees cope with it. When prices for one commodity or item rise, people change their buying habits: Like from steak to hamburger. Critics say using that logic, the progression is steak to hamburger to dog food.

The National Active and Retired Federal Employees organization is one of the biggest foes of switching to the chained CPI. Legislative director Jessica Klement said that over a lifetime in retirement, the typical CSRS retirees benefits would be reduced by tens of thousands of dollars.

Klement will be our lead-off guest this morning on our Federal News Radio or 1500 AM in the D.C. area. My guest will also talk about the legislative outlook for feds in 2015. Later in the show Federal Times Senior Writer Andy Medici will talk about what feds can expect to happen—or not—this year, the odds of a 2015 pay raise and the impact of “grade creep” on your paycheck.


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(Source: Mental Floss)


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