1.3% COLA Not as Bad as It Sounds
The 1.3 percent raise that federal and military retirees will get in January will be the lowest cost-of-living adjustment they've received since 1986, when they also got a 1.3 percent COLA. The increase is official and will first show up in checks received in January.</br></br>People getting Social Security benefits -- and that includes many federal retirees, too -- will also get the 1.3 percent raise. It reflects the rise in living costs, as measured by the consumer price index between the third quarter of this year (July, August and September) and the third quarter of 1997. In other words, inflation for that 12-month period rose only 1.3 percent.</br></br>While many retirees are disappointed with a COLA of only 1.3 percent, most experts say it is a good thing because it means inflation is low and prices are stable. Retirees longing for the good old days of double-digit COLAs forget what double-digit inflation can do to prices on everything from food to cars. In 1979, retirees got a 10.8 percent COLA. In 1980, the COLA was 13.7 percent. And in 1981 (the last time retirees got two raises in one year), they got 13.1 percent. That was a period of double-digit inflation. It also was before Congress voted to eliminate the twice-a-year COLAs that some feared would eventually push the cost of civil service retirement higher than payroll costs.</br></br>Since that time, federal retirees have had to fight regularly (and usually with success) to get one full COLA a year. There was no COLA adjustment in 1985, and Congress and the White House delayed COLAs for three months (paying them in April instead of January) in 1994, 1995 and 1996.</br></br>Workers who retire under the old Civil Service Retirement System get a full COLA each year. Workers who retire under the newer Federal Employees Retirement System are under a "diet COLA" system. They get a full COLA on the CSRS portion of their annuity. But the FERS portion of their annuity is subject to different rules. For example, if living costs (as measured by the CPI) are up 2 percent or less, both groups get the same increase. But if the rise in living costs is between 2 and 3 percent, CSRS benefits go up by the full amount, while payments on the FERS portion rise by only 2 percent. If the CPI goes up 3 percent or more, FERS benefits equal the CPI minus 1 percent.