After months of debate and concerns about the federal budget, retired employees are set to see a  2% cost of living adjustment (COLA) to their benefits payments starting in January. This raise applies to CSRS retirees and FERS retirees who are eligible for a COLA. Social security recipients, military beneficiaries, and people who receive survivor benefits will also all see a 2% increase in their benefits as part of the federal government’s 2018 budget plan. The 2018 COLAs were a key issue for many Congressional leaders who expressed concern for retired federal employees. With the passing of this adjustment, many social security and FERS recipients should see an increase in their income and overall buying power, making their retirement more comfortable as the average cost of living in the United States increases.

Why Does the Government Approve an Annual COLA?

As the name sounds, the cost of living adjustment serves to help increase benefits to match the rising costs of goods and services. Based on the consumer price index, the federal government looks at increases in housing costs, food, energy, gas, and other expenses to decide what employees will need to get by. For example, the cost of a loaf of bread in 1990 cost an average of $1.34, and in 2013, it was $3.80. If an employee retired in 1990 and was still receiving the same benefit level today, there’s no way they could afford the increased cost of living. The annual adjustment is meant to cover this.       COLAs are provided by the federal government and also employers in the private and non-profit sectors that want to increase employee salaries without giving them raises.

Not Everyone Will Benefit From the COLA

While increases in retirement benefits and social security payments are viewed as positive moves by the federal government, not everyone thinks the change is going to help retired employees as much as Congress would like. In an article for the LA Times, Les Gapay writes that his COLA adjustment will result in $24 more per month over the next year. However, due to increases in Medicare Part B and Part D insurance premiums, his social security check will actually be $3.40 less per month than he currently receives. This is because the government deducts Medicare costs from Social Security payments. Increases in healthcare actively decrease retiree buying power and in some cases cancel out the benefits. If you’re not seeing the full 2% COLA that you expect in your payments, your Medicare enrollment might have something to do with it. The COLA as a whole isn’t unpopular, but outside factors like rising Medicare expenses certainly affect it. The 2% increase at least helps cover the cost of Medicare for most retired employees.   

Understanding the Difference Between a COLA and a Raise

Employees who see an increase in their salaries might not receive a COLA. The team at FedWeek wanted to clarify the difference between COLAs and raises, as both cost of living changes and employee raises were hotly debated in 2017. For reference:

  • COLAs are awarded to retired employees and the spouses or children of employees who receive benefits. They are not awarded to current federal employees.
  • Raises are awarded to employees. These might be given as part of a cost of living adjustment for the federal workforce, or as part of a promotion or merit-based benefit. However, they should never be referred to as COLAs.   

While the easy way to remember the difference is that current employees receive raises, the two options are actually calculated differently. COLAs are calculated by the consumer price index, and raises are determined by the employment cost index plus locality pay in the area. This ensures that current federal employees are paid close to what they would make in the private sector, ideally keeping the federal government competitive as an employer in order to attract top talent. Unless your manager discussed an income increase with you starting in 2018, current employees should not see the same 2% increase that retired employees and their beneficiaries have this year.

Learn How this COLA Affects Your Financial Situation

While a 2% COLA is typically well-received across the board, it may also mean additional options are available for employees who receive them. If you want to understand how this COLA will affect you personally, contact MyFedBenefits today. The start of a new year is a great time to review your finances. If you’re a retired employee, use this COLA to make sure you and your family are financially comfortable for the next few years. If you’re a current federal employee, make your New Year’s Resolution to set yourself up for retirement success. Talk to a local benefit specialist today about your retirement options and how much you should be setting aside for your future. Find a benefits specialist today. 

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