COLA 101: How benefits keep pace with rising prices

By Alex Keenan

When the new year begins, retirees will see an increase in their military checks as a result of their annual cost of living increase, or COLA, designed to ensure the value of retirement pay keeps pace with inflation.  It’s something that happens automatically each year, but many retirees are a little murky on exactly how it works.

The COLA is based the Con­sumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a Labor Department measure of changes in the average costs of a large “market basket” of common goods and services.  The most basic definition of the COLA is that it equals the average percentage increase in the CPI-W from the last quarter of one fiscal year — July, August and September — to the same three-month period the next year.

The COLA is one of the most important features of the military retirement plan because it guarantees that the purchasing power of most retirees remains stable for as long as they live.

Even in a period of economic uncertainty, with our military engaged in a variety of missions from the war in Iraq to protecting our borders, the COLA is something you can count on.

Inflation ran higher than usual in 2008, which means the COLA for 2009 will 5.8 percent, by far the highest jump in more than a decade, during which the annual increase generally has stayed in the 2 percent to 3 percent range.

Here’s how we got to 5.8 percent for 2009: According to the Labor Department, the CPI-W for the last quarter of fiscal 2007 was 203.596, and the CPI-W for the last quarter of fiscal 2008 was 215.495.

If you run the mathematical percentage formula on those two figures — 215.495 minus 203.596, divided by 203.596, multiplied by 100, you come up with … 5.8.
 
Who gets what:

COLA increases are based upon when you entered the service and when you retired.

According to the Military Offi­cers Association of America, here’s how it all shakes out: Retirees who entered service before Sept. 8, 1980, and retired on or after Jan. 1, 2008, will get a 5 percent cost-of-living increase.

Those who entered service on or after Sept. 8, 1980, and retired before Jan. 1, 2008, will get the full 5.8 percent COLA.

Those who entered service on or after Sept. 8, 1980, and retired in 2008, will get a smaller, partial COLA for this year only because they got a military pay raise in January — which also boosted their 2008 retired pay: ¦ If you retired from Jan. 1 to March 31, you’ll get a 5 percent COLA.

  ¦ If you retired from April 1 to June 30, you’ll get a 3.8 percent COLA.
  ¦ If you retired from July 1 to Sept. 30, you’ll get a 1.2 percent COLA.
  ¦ If you retired after Oct. 1, you’ll get no COLA (again, for this year only).

Finally, retirees who entered service on or after Aug. 1, 1986, and elected to take the $30,000 Career Status Bonus at 15 years of service and retired on or be­fore Jan. 1, will get a retirement pay increase of 4.8 percent.

Annual COLAs under that Redux retirement system are one percentage point less than the full COLA in any given year.

With the current economic un­certainty swirling around us, it’s comforting to know that at least your military retirement pay will keep pace with increases in the cost of living.  You can track the inflation rate that determines the annual retiree COLA anytime at
www.airforcetimes.com/money.

Alex Keenan is a retired command master chief petty officer who ser ved 28 years in the Coast Guard.  E-mail him at [email protected].