Cracking the retiree COLA code

Nearly 70 million Americans — and lots of family members, local merchants and landlords — have a huge stake in the size of the January 2018 cost-of-living adjustment. That COLA, assuming there is one, will go to millions of federal and military retirees and to the much larger group of Americans who get Social Security benefits. And to their survivors, too.

With four months left to go in the countdown, the COLA stands at 1.51 percent. If it goes up this month, or in July, August and/or September, the inflation catch-up will be bigger.

Most people understand the concept of the inflation catch-up. What they don’t get is the “it” part, as in, “if it goes up.” Say what?

But if you are a regular fan of Jeopardy, do the New York Times crossword or regularly tackle Sudoku, you probably want more.  And you’ve come to the right place.

The government has a number of yardsticks — actually indexes — to monitor prices and costs of a variety of items around the nation. The one impacting the most people is the Consumer Price Index-W (for Worker).  It determines the increase in the January COLA, if any, each year. Results vary. A lot.

In January 2017, there was a COLA. But at 0.3 percent, you had to look hard to find it. Most of that ‘increase’ was eaten up by a variety of things, like health insurance premiums, that jumped a lot.

The retirees didn’t get any COLA in 2016, or 2011 or 2010. In between those years, they got 3.6 percent in 2012, 1.7 percent in 2013, 1.5 percent in 2014 and another 1.7 percent in 2015.

Since inflation-protection was introduced to civil service, military and Social Security benefits, they’ve jumped dramatically because of the effect of compounding. Many people now get retirement benefits that are higher than their final salary when they left government. Or the private sector, in some cases.

The biggest COLAs occurred at the start of the inflation catch-up period in the mid-1970s through the early 1980s. The COLA in 1975 (the due date then was July, not January) was 8.0 percent.  That was followed by 6.4 percent in 1976, 5.9 percent in 1977, 6.5 percent in 1978, 9.9 percent in 1979, a whopping 14.3 percent in 1980 and then 11.2 percent in 1981 when oil prices started to decline.

Many people argue that using the CPI-W to track inflation isn’t fair to retirees because it doesn’t take into account the fact that most retirees have much higher medical costs than younger workers.  They say retirees lose thousands of dollars in benefits over a lifetime because of the CPI-W.

Others in past have argued that the government could save millions of dollars each year if it used a different CPI model that takes into account that people adjust their living standards (buy chicken instead of steak) to match the market place.

Regardless of where you stand in the keep-up-with-inflation derby, odds are you don’t understand how it works.  Welcome to the club, because it is a big one.  So to the rescue is the National Active and Retired Federal Employees, which put out the following explanation for members and allowed us to use the chart. After studying the complex system — we suggest sitting down with a strong drink and a loved one nearby — you still may not get it. Suffice to say, this is complex, but vitally important, stuff.

Good luck:

“Relevant to the cost-of-living-adjustment to civil service annuities for 2018, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.07 percent in May 2017.

Federal retirees received a 0.3 percent cost-of-living adjustment (COLA) to their civil service annuities in January 2017; the same is true for Social Security benefits and military retirement annuities.

The new CPI-W figure for May 2017 was 238.609, 1.51 percent higher than the average CPI-W for the third quarter of 2016, which will be used to determine the 2018 COLA, and was 235.057 (1982-84 = 100).

Under current law, COLAs for federal retirement annuities, as well as for military retiree annuities and Social Security payments, are determined in reference to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is calculated by economists and statisticians with the Bureau of Labor Statistics (BLS). The CPI-W is the current index used for measuring increases in the prices of consumer goods, including food and beverages, housing, clothing, transportation, medical care, recreation, education, communication, and more. To learn more about how the BLS calculates the CPI-W, please click here.

NARFE continues to support strong COLAs based on fair assessments of increases in consumer prices to protect the value of federal annuities from inflation. NARFE specifically supports a switch to the Consumer Price Index for the Elderly (CPI-E), which would result in higher COLAs and opposes a switch to the Chained CPI, which would result in lower COLAs.


Individuals receiving insurance benefits under the Federal Employees Compensation Act (FECA) received a 2.0 percent COLA in March 2017.

This number was determined by comparing the December 2016 CPI-W (235.390) to the December 2015 CPI-W (230.791). FECA COLA’s are determined by a different statutorily-set methodology than the COLA for other federal retirees. Benefits awarded under the Federal Employees Compensation Act (FECA) to individuals suffering work-related injuries or illnesses, are adjusted according to each calendar year’s percentage change in the CPI-W (rather than as measured by the change from the highest previous third quarter average).

Looking ahead to the 2018 COLA for FECA benefits, the May 2017 CPI-W figure (238.609) is 1.37 percent higher than the December 2016 CPI-W figure (235.390).

The Consumer Price Index for June 2017 is scheduled to be released on Friday, July 14, 2017, at 8:30 a.m. (EDT).”

p.s. If you do crack the code and come up with a relatively short, simple explanation, please be in touch!

Nearly Useless Factoid

By Jory Heckman

Farmers in Botswana have started painting eyes on the backsides of their cows in order to stop lions from attacking them.


Read more of Mike Causey’s Federal Report