Do Military Retirees Get COLA & How Is It Calculated?
Military retirees: Understand how Cost of Living Adjustments (COLA) protect your retired pay and related benefits from inflation, ensuring financial stability.
A Cost of Living Adjustment (COLA) is an increase in benefits designed to help individuals maintain their purchasing power in the face of inflation. Military retirees receive COLA as an annual adjustment to their retired pay, ensuring the value of their earned benefits does not erode over time.
How Military COLA is Determined
The COLA for military retired pay is directly linked to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the average change over time in the prices urban wage earners and clerical workers pay for consumer goods and services. The annual adjustment is calculated by comparing the average CPI-W from the third quarter (July, August, and September) of the current year to the average for the same period of the previous year.
The percentage increase in CPI-W determines the COLA rate for the upcoming year. The COLA rate is typically announced in October, becomes effective on December 1st, and is reflected in the first payment received on January 1st of the following year.
In situations where the CPI-W decreases, military retired pay does not experience a reduction; instead, the COLA for that year is zero, meaning benefits remain unchanged. If a decrease occurs, future COLA increases are offset until the CPI-W surpasses the last previous high point that triggered a positive COLA. This mechanism safeguards retired pay against inflation without exposing it to deflationary pressures.
A service member’s initial COLA adjustment after retirement may be prorated if they retire between January 1st and September 30th. This partial COLA helps prevent retirees from receiving a full COLA in their first year of retirement.
Who Receives Military COLA
All military personnel who complete 20 years of service are eligible to receive COLA on their retired pay. This includes active-duty retirees, reserve retirees, and disability retirees. The COLA applies to the gross amount of their retired pay.
Military retired pay is calculated under various systems, such as the Final Pay, High-3, and the Blended Retirement System (BRS). COLA applies to all these plans. The High-3 system is the most common system for current retirees.
The Career Status Bonus (CSB)/REDUX retirement plan features a slightly different COLA application. For REDUX participants, the annual COLA is typically one percentage point less than the COLA applied to other retirement plans. However, REDUX retirees receive a one-time adjustment at age 62 to bring their retirement pay up to what it would have been under the High-3 system, with full COLA rates applied to this adjusted amount.
Even after this age 62 adjustment, subsequent COLAs for REDUX retirees revert to being one percentage point lower than the standard COLA. The COLA for military retired pay is distinct from annual active-duty pay raises, which are determined by different economic indicators.
COLA for Related Military Benefits
Beyond military retired pay, COLA also applies to several other benefits received by military retirees or their survivors. These adjustments help these benefits keep pace with inflation, reflecting the ongoing commitment to financial security. Each benefit may have its own specific COLA mechanism, depending on its nature and governing regulations.
Survivor Benefit Plan (SBP) annuities, which provide a continuous lifetime income to eligible survivors of deceased military members, also receive the same COLA as military retired pay. This means that if military retired pay receives a 2.5% COLA, SBP annuities will also increase by 2.5%, effective December 1st.
VA disability compensation, a separate benefit from military retired pay, also undergoes an annual COLA. The COLA for VA disability compensation is typically tied to the Social Security COLA, meaning it follows the same percentage increase. This adjustment is usually announced by the Social Security Administration in October and becomes effective on December 1st.
For retirees receiving Concurrent Retirement and Disability Pay (CRDP) or Combat-Related Special Compensation (CRSC), COLA applies to their total pay. CRDP allows eligible military retirees to receive both their full military retired pay and VA disability compensation, eliminating the traditional offset. Since CRDP restores the military retired pay component, the COLA is applied to this restored amount.
Similarly, CRSC provides tax-free payments to retired veterans with combat-related injuries, restoring portions of retired pay that are offset by VA disability. As CRSC payments are integrated with or directly related to retired pay, COLA applies to the overall compensation received.