Big COLA Boost for Retirees
High inflation at least means a boost in federal retirement benefits.
Federal retirees can breathe a sigh of relief: They will continue to be able to buy groceries, pay for health care and put gas in their cars in 2023. Most retirees will see the largest annual increase in benefits payments in more than four decades, based on the Social Security Administration’s announcement this week that its annual cost of living adjustment will be 8.7%.
Civil Service Retirement System
Retirees covered under CSRS who have been receiving retirement benefits since December 2021 will see the full 8.7% increase in their benefit payable on January 1, 2023 (which is the December 2022 payment).
Those who retired after Dec. 3, 2021 will receive a prorated amount of the COLA based on the number of months they received retirement benefits before Dec. 1, 2022. The full increase also applies to CSRS survivor annuitants and children who are receiving survivor annuities.
Federal Employees Retirement System
Under FERS, when the Consumer Price Index increase is 3% or higher, the annual COLA is 1% less than that amount. So the COLA for eligible FERS retirees will be 7.7%.
It is important to remember that those who retire under FERS and are younger than 62 on Dec. 1, 2022 will not see any of the increase in their 2023 FERS retirement benefit due to the delayed COLA that applies to most FERS retirees. Those who have reached 62 before December 2022 will receive the full 7.7% increase in their December FERS retirement benefit, payable in January 2023. There are exceptions for FERS disability annuitants, those retiring under the special provisions covering law enforcement officers, firefighters and air traffic controllers, and also spouse, former spouse, and insurable interest survivor annuitants.
Eligible FERS retirees who retired after Nov. 30, 2021 and had their retirement commence in January 2022 or later, will receive a prorated COLA based on the number of months they received retirement benefits before Dec. 1, 2022. For example, if a law enforcement officer retired on June 30, 2022, they would receive 5/12 of the 7.7% increase, or 3.2%, in their December benefit payment. There are no COLAs on the FERS special retirement supplement for any retiree.
This year’s COLA will increase Social Security retirees’ benefits by approximately 8.7%. It’s a little more complicated than that, though. The actual amount is based on an individual’s “primary insurance amount,” which is the amount of their benefit that is payable at their normal retirement age. The NRA for those born in 1960 or later is 67. For those who retire before their normal retirement age, the benefit will be lower than the primary insurance amount. Those who retire after attaining their normal retirement age will receive a benefit higher than their PIA.
Good News, Bad News
For those who are planning to retire on Dec. 31, 2022, and who will be eligible for a COLA, the first COLA will be granted on Dec. 1, 2023 and will be payable in their January 2024 annuity payment. That COLA will be 11/12 of the full COLA granted on Dec. 1, 2023.
Remember that a high COLA announcement is both good news and bad news. It’s more money in retirees’ pockets, but that’s because goods and services are much more expensive than in the pre-pandemic days. When will the economy return to normal? Time will tell, but in the meantime, most retirees will get at least some relief come January.