Low inflation in 2012 results in smaller boost.
Federal retirees will receive a 1.7 percent cost-of-living adjustment in 2013, according to the latest government figures.
The Bureau of Labor Statistics early Tuesday released September’s inflation figure, the final data point needed to calculate the 2013 COLA. Inflation stayed relatively low over 2012, resulting in a 2013 COLA that is much less than this year’s 3.6 percent bump.
The government publishes the annual cost-of-living adjustments typically in late October, based on the percentage increase (if any) in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. The CPI-W measures price changes in food, housing, gas and other goods and services. The 3.6 percent boost in 2012 was the first COLA increase since 2008.
The average of the July, August and September numbers along with the average figure from the third quarter of 2011 are used to calculate the 2013 COLA.
All federal retirees -- whether they are covered by the Civil Service Retirement System or the Federal Employees Retirement System -- will receive the full 1.7 percent. According to the formula, if the full COLA increase is 3 percent or higher, as it was for 2012, then FERS retirees receive 1 percent less than the full increase. So FERS retirees received a 2.6 percent boost for 2012. If the COLA falls between 2 percent and 3 percent, then FERS retirees would receive 2 percent. If the increase is less than 2 percent, as it will be in 2013, FERS retirees receive the same as CSRS retirees.
The increase will result in about $21 more per month for retirees, according to an Associated Press report.
This year's increase takes effect on Dec. 1 and will be reflected in retirees’ first annuity payments in January 2013. The salaries of federal employees are not affected by the COLA announcement.
The COLA amount that recipients actually end up with is affected by Medicare Part B premiums, since those premiums are deducted from Social Security payments. The government will announce the 2013 premiums, expected to increase between 5 percent and 10 percent over 2012 rates, later this fall. That means recipients likely will see less than the 1.7 percent expected increase.
Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association, said his organization was pleased that retirees will receive “some relief” from inflation. “This is welcome news for retirees who have seen the cost of living continue to increase over the past year,” he said. “As Congress debates ways to avoid the ‘fiscal cliff,’ NARFE is prepared to oppose any changes to the COLA formula that would have an adverse effect on retirees.”