January pay raise or COLA: Why not both?

It isn’t the year that matters, but the month of the year that you decide to retire. So if you’ve got a friend hoping to take advantage of a higher COLA tel...

Every year since the dawn of time (or at least the start of the federal civil service retirement program) some retirement-age workers have tried to time their retirement so they benefit from the January pay raise for workers, and the cost of living adjustment for retirees. That’s especially true in times of high inflation, like now. Workers got a 2.7% pay raise in January. Persons retired under the civil service retirement system program got a 5.9% cost of living adjustment. Those who were eligible for the COLA under the newer federal employee retirement system program got 4.9%. Most retirees under age 62 are not eligible for a COLA under FERS (exceptions for special groups such as law enforcement officers, firefighters, air traffic controllers and a few others).

The difference between the raise and the COLA prompted some workers to put in their retirement papers in December. The idea was to tack some or all of the COLA onto their starting annuity benefit while getting paid for unused annual leave (vacation time) at the new higher rate. Great in theory. But it falls short in practice. In fact, if you think the 2023 COLA will be much bigger than the proposed pay raise, there is still time to act. But not much time. And the longer retirement is delayed the less the reward. In fact, to get the full 2023 COLA you should have left months ago.

Here’s the deal:

While people retiring at the last minute can and do get some (or all) of their annual leave payment at the new higher rate, they can’t (and won’t) get credit for being retired while they were still working. In fact to get the full amount of the January COLA, either 5.9% or 4.9%, they would have had to retire no later than December of 2020. When the final numbers came out, we heard from half a dozen angry or perplexed workers who learned, too late, they couldn’t turn back the clock. One said “…why does it matter when you retire? If inflation is up they are going to have to live with it, so they should get the COLA that reflects it.”

Regardless of what people think should happen, the law is the law. So how does it work?

For more on the pay raise vs. COLA issue we turned to Tammy Flanagan. She is the ultimate federal benefits expert (after years with Uncle Sam) who now advises federal clients on how to get the most from their benefit package. She’s also a columnist for Government Executive. She can be reached at: Tammy@retirefederal.com. Here’s the timetable chart she provided:

She provided us with this chart showing how the COLA is pro-rated, based on when an individual retires. It isn’t the year that matters, but the month of the year that you decide to retire. So if you’ve got a friend hoping to take advantage of a higher COLA tell him or her that the clock is ticking. Here’s the magic formula:

Monthly Annuity Began Amount of 2021 COLA Percentage Increase included in annuity on 1/2/2022 Amount of 2022 increase on 1/1/2023 If your Monthly Annuity Began
December 2020 or earlier 5.9% 4.9% 12/12 12/21
January 2021 5.4% 4.5% 11/12 1/22
February 2021 4.9% 4.1% 10/12 2/22
March 2021 4.4% 3.7% 9/12 3/22
April 2021 3.9% 3.3% 8/12 4/22
May 2021 3.4% 2.9% 7/12 5/22
June 2021 2.9% 2.4% 1/2 6/22
July 2021 2.5% 2.0% 5/12 7/22
August 2021 2.0% 1.6% 4/12 8/22
September 2021 1.5% 1.2% 3/12 9/22
October 2021 1.0% 0.8% 2/12 10/22
November 2021 0.5% 0.4% 1/12 11/22

*Your FERS annuity will be increased for cost-of-living adjustments, if:

  • You are over age 62; or
  • You retired under the special provision for air traffic controllers, law enforcement personnel or firefighters; or
  • You retired on disability, except when you are receiving a disability annuity based on 60% of your high-three average salary. This is generally during the first year of receiving disability benefits; or
  • Your retirement includes a portion computed under Civil Service Retirement System rules.
  • FERS retirees under age 62 who do not fall into one of the categories above are not eligible for cost-of-living increases until they reach age 62.

If you’ve been receiving retirement benefits for less than one year and are eligible for a cost-of-living adjustment, you’ll get a percentage of the cost-of-living increase. The percentage depends on how long you were receiving your annuity before the effective date of the increase.

Nearly Useless Factoid

By Robert O’Shaughnessy

You can ride a cable car outside of San Francisco… in Poway, California. There, you can catch a ride on a 1906 cable car that started its life on California Street in the City by the Bay.

Source: Atlas Obscura

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