Ask The Experts: Retirement

By Reg Jones

The answers to your 2014 COLA questions

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Every fall, readers ask me what the cost-of-living adjustment will be for CSRS and FERS retirees and Social Security beneficiaries. And they want to know where the numbers come from, who is eligible for a COLA, when are they effective, if they are prorated, and why they are sometimes different for CSRS and FERS retirees.

Because of the government shutdown, it took a little longer than usual to find out that the what the 2014 COLA will be. It’s 1.5 percent. Not great, but better than a poke in the eye with a sharp stick.

Where do the numbers come from? COLAs are a byproduct of data collected by the Bureau of Labor Statistics, which it uses to produce the Consumer Price Index for Urban Consumers. The CPI-U covers about 87 percent of the population. However, to more closely match the spending patterns of federal beneficiaries, BLS uses a subset made up of Urban Wage Earners and Clerical Workers — the CPI-W.

The CPI-W is based on the spending patterns of households where more than half of the income comes from clerical or wage occupations and where at least one of the household’s earners has been employed for at least 37 weeks during the previous 12 months. The COLA amount is determined by the difference in the CPI-W from one year to the next. The arithmetical mean of the CPI-W for the third quarter of the current year — July, August and September — is compared with the arithmetical mean from the base quarter in the previous year.

Who is eligible for a COLA? If you are a CSRS retiree, when you’ve been on the annuity roll long enough, you’ll receive a COLA regardless of your age. With certain exceptions, if you are a FERS retiree, you won’t receive your first COLA until you reach age 62. If you are a FERS employee who retired under the special provisions for law enforcement officers, firefighters or air traffic controllers, you’ll begin receiving your COLA regardless of your age. The same is true for military reserve technicians whose separation from technician service resulted from a loss of military membership or rank because they became disabled after reaching age 50 and completing 25 years of service. Also entitled to non-age-restricted COLAs are survivor spouses, former spouses and insurable interest survivor annuitants.

COLAs are effective Dec. 1 of the year in which a retiree, survivor or Social Security beneficiary becomes eligible. The increases are reflected in the January payments.

When and how are COLAs prorated? For those of you who are eligible and have been retired for an entire year, you’ll receive the full amount of the COLA. If you’ve been retired for less than a year, it will be prorated. The proration will be based on the number of months that have elapsed between the date your annuity began and the effective date of the first COLA after that date. For example, if you retired after Nov. 30, 2012, (FERS) or Dec. 3, 2012, (CSRS), your 2014 COLA would be reduced by 1/12th for each month that you were still employed.

Why are COLAs different for CSRS and FERS retirees? While the 2014 COLA will be the same for CSRS and FERS retirees, it isn’t always that way. That’s because the FERS law states that if the CPI/W increases by 3 percent or more in any year, FERS-covered retirees and survivors will receive 1 percent less than that number. That happened in 2012, when CSRS retirees received 3.6 percent and FERS retirees 2.6 percent. If the CPI/W increases by 2 percent to 3 percent, the adjustment will be 2 percent. If the CPI/W increases by less than 2 percent, the adjustment will equal the CPI/W. That is happening this year.

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