King-sized COLA coming — for some!

The government next month is expected to announce the largest inflation catch up in years for most current federal and military retirees and those who get Social Security payments. The exact amount of the January 2022 adjustment won’t be known until the government releases the Consumer Price Index-W level in October. With the September data still to be determined, many who watch the cost of living adjustment (COLA) process are predicting the January COLA could be 6%. Maybe a little more. That’s the good news.

The not-so-good news is that the big COLA means inflation is here. Maybe for a long time. And for those under the Federal Employee Retirement System (FERS) plan, it will trigger the first diet-COLA since 2019, when those who retired under the old civil service retirement system (CSRS) program got a 2.8% COLA — while FERS retirees got 2%. The diet COLA also kicked in back in 2012 when CSRS annuities went up 3.6% compared to the 2.6% diet-COLA for those under the FERS program. To add insult to injury, when Congress ended the CSRS plan in favor of FERS, it also said that FERS retirees must wait until age 62 to get any COLA — even a diet one!

Currently, most feds in retirement retired under the CSRS program so they get full COLAs. But the overwhelmingly majority of people working for Uncle Sam now, from forest rangers to scientists at NASA and the CDC, are under the FERS program. When they retire, they will be subject to the diet-COLA whenever living costs exceed 2%. While that doesn’t seem like a lot — especially to private sector folks whose benefits are frozen at retirement — losing 1% a year to inflation can, in a short period of time, be a financial problem. It means everything from food, housing and medicine to Medicare Part B premiums are going up faster than the FERS annuity. Over a relatively short time period, that erodes the spending power of a frozen or less-then-full COLA for retirees. And over time that could force retirees to tap their savings — like their TSP account — earlier than they planned. And to take out more than the 4% per year figure recommended by many experts. Plus it could persuade many people who are still working to shift more of their TSP nest egg into the C, S and I stock index funds that have a much better track record than so-called “safe” places like the F (bond) or C fund. In recent years, more feds have shifted more of their TSP allocation to the C fund. Currently it has more money in it than the long-dominate G-fund. To check out those numbers, click here.

High inflation — anything over 2% — creates major life-changing problems for people, even those who get regular raises or retirement benefits — like CSRS and Social Security — that are linked to inflation. Another problem is that many experts don’t think the CPI-W, which determines the size of January COLAs, accurately reflects the higher costs for things like medicine that older, retired people experience.

Meantime, here’s a look at the COLAs from 1999 to present for those under CSRS and FERS. You can see that over time the buying power of FERS retirees diminishes quickly:

                                                  COLA for CSRS                                      COLA for FERS                        
2021 1.3 1.3
2020 1.6 1.6
2019 2.8 2.0
2018 2.0 2.0
2017 0.3 0.3
2016 0 0
2015 1.7 1.7
2014 1.5 1.5
2013 1.7 1.7
2012 3.6 2.6
2011 0 0
2010 0 0
2009 5.8 4.8
2008 2.3 2.0
2007 3.3 2.3
2006 4.1 3.1
2005 2.7 2.0
2004 2.1 2.0
2003 1.4 1.4
2002 2.6 2.0
2001 3.5 2.5
2000 2.4 2.0
1999 1.3 1.3

Nearly Useless Factoid

By Alazar Moges

The census is written into the Constitution. Article I, Section 2 of the U.S. Constitution says a count of the U.S. population be done every ten years.

Source: Census Bureau

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THRIFT SAVINGS PLAN TICKER

Dec 03, 2021 Close Change YTD*
L Income 23.2215 -0.0408 4.32%
L 2025 11.9963 -0.0431 7.70%
L 2030 42.3804 -0.2118 9.58%
L 2035 12.7320 -0.0701 10.38%
L 2040 48.1934 -0.2912 11.19%
L 2045 13.2040 -0.0861 11.85%
L 2050 28.9321 -0.2026 12.55%
L 2055 14.2261 -0.1257 15.21%
L 2060 14.2261 -0.1257 15.21%
L 2065 14.2260 -0.1257 15.20%
G Fund 16.7177 0.0007 1.26%
F Fund 21.0261 0.08 -1.14%
C Fund 68.4493 -0.5796 23.16%
S Fund 80.7041 -1.887 11.80%
I Fund 37.7230 -0.1338 6.04%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.