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It’s COLA time again … as in the cost-of-living adjustment for federal, civil service and Social Security retirees. The actual COLA for 2018 will be known by the middle of October. That’s when the Labor Department’s Bureau of Labor Statistics will compare the average Consumer Price Index from this July, August and September against last year’s Q3 average.

In the meantime, COLA handicappers have 2018’s COLA pegged at around 2.1 percent for Civil Service Retirement System (CSRS) members and Social Security recipients. Federal Employees’ Retirement System (FERS) members should see a slightly lower 2.0 percent increase. This pales in comparison to 2009, when the COLA was 5.8 percent for CSRS and 4.8 percent for FERS, but it handily beats the goose egg offered up for 2016. The COLA for 2017 was 0.3 percent.

Who Gets a COLA?

If you are retired and on Social Security—or a member of either FERS or CSRS—you will receive a COLA, assuming there is one. (Anyone receiving Supplemental Security Income [SSI] or Social Security Disability Insurance [SSDI] also gets a COLA.) As noted above, the COLA is calculated by the Department of Labor (DOL) based on the rate of inflation, as represented by the percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The retirement system you belong to determines the amount of your COLA, relative to calculations by the DOL.

What About Federal Employees?

Federal workers get a pay raise—except when there is a pay freeze—but do not receive a COLA. This can create confusion when federal employees receive a pay raise of one amount and federal retirees receive a COLA of another amount. To make things even more confusing, some federal workers get different raises based on where they live. Federal retirees all receive the same COLA, no matter where they call home.

How Are COLAs Calculated?

There are actually two COLAs: one for Social Security recipients and members of CSRS and another for members of FERS. If you are on Social Security or a member of CSRS, your COLA is the percentage set by the Department of Labor. For members of FERS, if the CPI-W for the past year increases 2 percent or less, your COLA is the same as the CPI-W. If the increase is above 2 percent,  but not more than 3 percent, your COLA is 2 percent. (This is what prognosticators believe it will be for 2018.) If the CPI-W increase is more than 3 percent, your COLA will be 1 percent less than the increase. For all three retirement systems, the COLA is effective in December (payable in January) and the actual amount is rounded down to the next whole dollar.

The Fine Print

Your COLA as a Social Security recipient is calculated by multiplying the new DOL percentage by your primary insurance amount (PMI). That amount is further adjusted based on whether you signed up for Social Security early, at full retirement or later. CSRS and FERS members must have been retired for the full year to get the full COLA; otherwise, it is prorated. FERS retirees do not receive a COLA until age 62, except for disability, survivor benefits or other special provision retirements.

Not Keeping Up

COLAs are helpful but hardly wealth producing. Since they are based on increases in the cost of living, retirees can expect to pay more for everything from food to health insurance, but, in most cases, the increases are not offset by the COLA. Social Security benefits, for example, have increased 43 percent since 2000. Meanwhile, typical expenses for seniors, according to the Senior Citizens League, have gone up 86 percent. One advantage federal retirees have is that the government, by law, picks up an average of 72 percent of their healthcare premiums, no matter how much they increase.

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