When Does Military Retirement Pay Increase?

Military retirement pay provides a stable income stream for eligible service members, offering financial security after their uniformed service concludes. While the initial amount of this retirement pay is determined by factors such as years of service and rank, it is subject to periodic adjustments. These adjustments are designed to help maintain the purchasing power of the retirement benefit over time, ensuring that inflation does not significantly erode its value.

Understanding Cost of Living Adjustments (COLAs)

The primary mechanism for increasing military retirement pay is through Cost of Living Adjustments, commonly known as COLAs. A COLA is an annual increase intended to counteract the effects of inflation, thereby preserving the purchasing power of a retiree’s income. This adjustment ensures that the value of the retirement benefit keeps pace with the rising costs of goods and services.

COLAs are determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is calculated by the Bureau of Labor Statistics. The COLA percentage is specifically based on the change between the average third-quarter CPI-W of the current year compared to the average third-quarter CPI-W of the previous year. If there is no increase or a decrease in the CPI-W, the COLA will be zero, meaning retirement pay will not decrease.

The official COLA announcement typically occurs in October, following the compilation of the third-quarter CPI-W data. These adjustments become effective on December 1st of the year they are announced. Retirees generally see the increased amount reflected in their December payment, which is received in January of the following calendar year. For service members who retire between January 1st and September 30th, their first COLA may be prorated or partial to prevent them from receiving both a new pay raise and a full COLA in their initial retirement year.

How Your Retirement Plan Affects COLAs

The application of COLAs to military retirement pay varies depending on the specific retirement system a service member is under. Different plans have distinct methodologies for how these annual adjustments are calculated and applied. Understanding these differences is important for anticipating how your retirement income will be adjusted over time.

For those under the “High-3” retirement system, which calculates retirement pay based on the average of the highest 36 months of basic pay, COLAs are generally applied at the full rate. This means that the annual increase for High-3 retirees is equal to the full percentage increase of the CPI-W, mirroring the adjustments seen in Social Security benefits. This full COLA application helps to consistently maintain the value of their retirement income against inflationary pressures.

The “REDUX” retirement system, which was an option for service members who entered service between August 1, 1986, and December 31, 2017, features different COLA rules. Under REDUX, the annual COLA is typically one percentage point less than the full CPI-W increase until the retiree reaches age 62. For instance, if the full COLA is 2.5%, a REDUX retiree would receive a 1.5% adjustment. There is an exception: if the full COLA is 1% or less, REDUX retirees receive the same COLA as other plans.

At age 62, REDUX retirees receive a one-time “catch-up” COLA, which adjusts their retirement pay to what it would have been if they had been under the High-3 system with full COLAs since retirement. After this age 62 adjustment, subsequent COLAs revert to the reduced rate of CPI-W minus one percentage point. The REDUX system was discontinued as of January 1, 2018, with the introduction of the Blended Retirement System.

The “Blended Retirement System (BRS),” which became effective January 1, 2018, generally applies COLAs in a manner similar to the High-3 system. BRS retirees typically receive the full COLA, equal to the percentage increase in the CPI-W.