If you are currently a federal worker who is considering retiring this year, is it possible to get both the pending pay raise and the COLA due retirees in January? Well sort of. In some cases. But first indulge me.
As a kid growing up in downtown D.C (locals rarely say Washington) we didn’t have much money. But my pals and I had the best playground anywhere. We had at our disposal dozens of museums, galleries and other venues. They were also — most still are — free! Even when we skipped school we often headed for one of the Smithsonian museums, or the National Geographic. So even while playing the truant and goofing out it was hard not to learn stuff. One of my favorite school week vacation spots was the National Archives on Pennsylvania Ave. Chock full of interesting, historic documents. And a great gift shop.
One thing that puzzled me was the giant words “What’s past is prologue” chiseled in front of the building. Weird. At the time! It was years before I learned it was Shakespeare (what isn’t?) or its very deep meaning. That is, people and events tend to repeat history. This is definitely true year-after-year in the federal workforce. Now back to reality, the 2023 federal pay raise and the January inflation-adjustment for retirees…
By law retirees get COLAs (inflation catch-ups) each January. Working feds usually get a pay raise based on political and fiscal conditions. This coming increase, for both feds and retirees, could be the biggest in years. And retirees are likely to score a bigger percentage increase than active duty folks. And every time this happens, dozens, hundreds, maybe thousands of about-to-retire feds try to figure out how they could get at least some of the new COLA even while their unused annual leave and final salary includes some or all of next years’ raise. So we asked the world’s leading authority on federal benefits, Tammy Flanagan. She agreed to be on our Your Turn radio show (today at 10 a.m. EDT) to explain why it is impossible to get full shares of both, but possible to get a piece of the action, if your timing is right. She sent us this preview of what’s happened in the past. The prologue part is up to you. Here’s how she explains it using this year’s COLA and raise, as an example:
The difference between the raise and the COLA most years prompts 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
*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, and this is important, 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.