With the 2022 retire cost of living adjustment (COLA) heading for record territory this year, many working feds wonder (and hope) if an inflation-driven big boost for retirees will influence their January pay raise.
Short answer: It could.
With three months left in the cost of living adjustment countdown, the actual rate of inflation hit 5.3% in May. Meantime, feds are looking at a 2.7% raise as proposed by the White House in January — but hoping Congress will raise that amount to 3.2% or more because of inflation pressures.
Although there is no technical or legislative link between a federal pay raise and a retiree cost of living adjustment, the amount of the COLA can sometimes influence the size of the January pay raise. The COLA formula is set by law. It is designed to keep federal, military and Social Security recipients current with inflation as measured by the Bureau of Labor Statistics Consumer Price Index-W. It measures changes in living costs in urban area. But it is NOT, however, a pay raise. It is determined by the rise, if any, in living costs from the third quarter of the current year compared to the previous year’s third quarter. The actual COLA won’t be known and announced until early October. And it would be effective in January 2022 retiree and Social Security checks. Earlier this year when inflation was low, experts predicted the January 2022 COLA would be in the neighborhood of 2%. This year the COLA was 1.3%.
As reported earlier this month, the all important CPI for the month of May rose 5% over May of 2020. The Labor Department said that’s the biggest jump since August 2008 during the Great Recession.
The amount of the annual January federal pay raise is determined by political and fiscal factors. It is not linked to inflation. Congress and the White House can say no to a pay raise, or set it at any level. Although feds have fared well with pay raises under Republican presidents in the past, in recent years unions and groups representing federal workers have consistently endorsed majority Democratic candidates. And with the exception of the Great Recession years, feds have done slightly better when Democrats control the White House and/or at least one body of Congress. Like now. For more in the difference a COLA makes, check out this FedSmith report of pay under Democrats vs. Republicans.
President Biden has proposed and budgeted for a 2.7% pay raise, which was considered generous. At the time. But since then, prices have been going up for things like gasoline. The downside of coming out of a pandemic is that more people are demanding more goods and services, causing costs for many things to rise. Which is why a group of House Democrats, lead by Virginia’s Gerry Connolly, are pushing for a 3.2% pay raise. While the difference is it not huge as reflected in the first pay raise paycheck, over time (because retirement benefits are based on length of service AND salary) the more you make — thanks to the miracle of compounding — the more you will get in retirement.
Bigger COLAs are based on higher inflation. With retirees caught in the middle. Many retirees root for the biggest COLA possible added to their monthly annuity. But the downside is that big COLAs mean trips to the gas station, supermarket and doctors office are more painful. Working feds can use all the raises they can get. Both for now and, in many cases, especially later when they are retired.
The size of the January COLA won’t be known and official until early October when the Labor Department processes all the numbers.
The size of the January pay raise won’t be known and official until Congress acts on the budget. That could easily be October, if not later.
Meantime the real COLA countdown has begun. It takes in the CPI-W levels for June, July and August.