The good news is that if you retire and reach the age of 62, you will receive a COLA (cost of living adjustment) every year on your FERS pension.
In practice, this means that your pension will grow a bit each year in order to keep up with inflation.
The bad news is that if you retire before the age of 62, you will not be eligible for a COLA until you reach that age. And if inflation is more than average (as it is in 2021), your purchasing power will be severely harmed.
How does inflation effect pensions?
To figure out how inflation will affect seniors, use the “Rule of 72,” according to Thomas Blackburn, a Certified Financial Planner with Mason & Associates. This calculator calculates how long something will take to double in value. For example, if an item costs $100 today and inflation is 2%, the item will double in price to $200 in 36 years (after dividing 72 by 2). It would take around ten years to double if inflation was 7%.
The provision also applies to a pension that does not include a cost-of-living adjustment. If inflation is 7%, your money will be worth half as much in ten years – a $50,000 pension now will be worth $25,000 in ten years.
Does the federal pension rise every year?
In 2022, federal retirees will experience the highest annual boost in benefits payments in 40 years, as the Social Security Administration revealed on Wednesday that the annual cost-of-living adjustment for Social Security will be 5.9%. The development has triggered increased efforts for politicians to ensure that the federal workforce’s retirement schemes are equal.
The annual rise in the third quarter consumer price index for workers is used to compute Social Security cost-of-living increases. The federal government’s Civil Service Retirement System uses the same formula to determine participants’ yearly annuity increases, which means CSRS retirees will get a 5.9% increase in their annuity payouts next year.
Former federal employees who are registered in the newer Federal Employees Retirement System, which was created at the same time as the defined contribution Thrift Savings Plan, will only see a 4.9 percent rise in their annuities.
FERS retirees receive the entire COLA if CSRS increases by less than 2% each year. FERS participants will only receive a 2 percent raise if the adjustment is between 2% and 3%. FERS retirees will receive 1 percentage point less if the CSRS COLA is 3% or higher, as it will be next year.
The 5.9% increase is the greatest annual increase in annuities for government pensioners since 1982, when the cost of living adjustment was 8.7%. However, the lack of parity between FERS and CSRS retirees has prompted federal employee groups to push for a reform in the legislation to ensure that all retirees receive the same annuity increase.
“This 5.9% COLA provides a buffer for seniors against current inflation, following years of little or no adjustments,” said Ken Thomas, national president of the National Active and Retired Federal Employees Association. “However, the news is not as pleasant for a large number of federal retirees: the January 2022 COLA for those who retired under the Federal Employees Retirement System will be 4.9 percent… This inequitable policy, implemented with the introduction of FERS in the 1980s, fails to effectively protect the earned value of FERS annuities, which decline in value year after yearexactly what COLAs are supposed to prevent.”
Rep. Gerry Connolly, D-Va., filed H.R. 304 in January, which would simply tie both CSRS and FERS cost-of-living adjustments to the CPI-W. President Biden promised before his election that he would campaign for cost-of-living adjustments based on the more generous consumer price index for the elderly, but he has not followed through on that commitment since taking office.
In 2022, will FERS retirees receive a COLA?
To use an overused phrase, retirement planning isn’t rocket science. However, it is not always simple, and neglecting some stages or stressing at the wrong time can cost you money. One that has the potential to last a lifetime. Take, for example, the cost of living adjustment for retirees in January 2022. FERS retirees received a 4.9 percent diet COLA, while CSRS retirees received a 5.9 percent diet COLA. The hike, which was intended to keep up with inflation, was due in early January in the form of checks or deposits. But…
Many folks were perplexed. They couldn’t follow the rules since they didn’t understand them. They are under the age of 62 and/or retired in late December. That’s because you can’t wait until the last minute to join the payroll and still be eligible for a COLA for the time you were working and on the payroll. The fact that those in the FERS program (now the vast majority of federal-postal workers) do not qualify for COLAs until they are 62 or older is another disqualifier.
The good news is that the federal retirement schemes, whether FERS or CSRS, contain a lot of moving components. The disadvantage is that in order to get the most out of your service, you’ll need to do some homework – ideally from day one on the payroll. Both in terms of the initial annuity and the maximum annuity. Again, it’s not rocket science, but it’s also not easy. Not something you can put off (if you want to get the most out of it) by waiting till the office gang is arranging your farewell party.
So, what are your options? This is a great place to start. We consult a number of experts (including current and former federal employees) in order to identify the best bargain or deals for you. Tammy Flanagan, a benefits expert. When her husband retired in 2015, they relocated to Florida, where Tammy founded Retire Federal, a consultancy firm that assists both active and retired federal employees. He’s a retired law enforcement officer (law enforcement officer). She is a full-time adviser for federal employees looking to retire and is well-versed in the retirement process. Or those who have pulled the plug yet still require assistance. She also contributes to Government Executive as a columnist.
Is there a cost-of-living adjustment for government pensions?
The percentage rise (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the previous year in which a COLA became effective is equal to the COLA effective for December of the current year. Any increment must be rounded to the nearest tenth of one percent. There is no COLA for the year if there is no rise or if the rounded increase is zero. For Social Security payments, military retirement pay, and CSRS (Civil Service Retirement System) retirement benefits, the most recent COLA is 5.9%. Beginning with the December 2021 benefits, which are payable in January 2022, payments will increase by 5.9%. Due to the FERS (Federal Employees Retirement System) “diet” and delayed COLA, those who are eligible for the 2021 COLA will receive 4.9 percent in their January FERS retirement benefit (remember, there is no COLA on the FERS supplement, and most FERS retirees do not receive a COLA until after they reach 62).”
The same depressing logic applies to folks who expect to retire in early January. They hope to receive the final check, or a portion of it, as well as some or all of their reimbursement for unused annual leave at the rate in effect in 2022. This is, once again, a non-starter. Those who retire on December 31, 2021 will receive their lump sum annual leave payment at the rate in effect in 2022, because the requirement is that the lump sum payment must equal the compensation the person would have earned had they continued employed until the end of the annual leave period.
We received a lot of questions from retirement-eligible workers regarding how to proceed since 2022 is a wage hike and COLA year. Could they earn one or both rewards if they retire at the right time? When the questions get that intricate, I turn to Tammy Flanagan, a benefits specialist. She’s a long-serving government benefits expert who recently retired. She currently runs her own consulting firm, where she has assisted a number of present and retired federal employees in getting the most out of their outstanding, but often difficult, benefit package. This query from an Interior Department employee is typical of the ones I’ve received this year. Tammy got it from me.
For many years, I’ve liked reading your Federal Report and have learnt a lot.
How can I safeguard my pension against inflation?
You can request that your pension increase in line with the Retail Price Index (RPI) each year, or at a predetermined rate, to safeguard your income from inflation (3 percent or 5 percent each year are the most common).
Will government employees get a raise in 2021?
The Biden administration is expected to seek a 4.6 percent wage increase for federal employees, the largest in 15 years. The pay raise for federal employees is part of the White House’s fiscal year 2023 budget request, which is scheduled to be given to Congress following the State of the Union address, according to Federal News Network.
The Office of Management and Budget (OMB) advised agencies of the 4.6 percent raise plan and increased funds to cover the additional salaries and expenditures in its annual “passback” recommendation. The Office of Management and Budget, on the other hand, made no distinction between locality-based and across-the-board hikes.
According to the Bureau of Labor Statistics’ Consumer Price Index report, annual inflation will be 7% in 2021. In January 2022, the Biden Administration implemented a 2.7 percent wage hike for government employees.
The Biden Administration proposed and Congress approved a 2.7 percent salary raise for FY 2022. In FY 2021, Congress approved a 1% rise for federal employees, up from a 3.1 percent increase the year before.
Is the FERS retirement system inflation-adjusted?
If the CPI increases by less than 2%, the Cost-of-Living Adjustment (COLA) is equal to the CPI rise for Federal Employees Retirement System (FERS) or FERS Special benefits. The Cost-of-Living Adjustment is 2 percent if the CPI rises by more than 2% but not more than 3%.
Is the FERS pension permanent?
The Basic Benefit and Social Security costs are deducted from your income by your employer as payroll deductions. Your company contributes as well. Then, once you’ve retired, you’ll get monthly annuity payments for the rest of your life. The TSP component of FERS is a separate account that your agency creates for you.
In 2023, what will COLA be?
The Senior Citizens League estimates that seniors on Social Security will receive a 7.6% COLA in 2023, based on recent inflation data. COLAs are determined for urban wage earners and clerical workers based on changes in the consumer price index (CPI-W). They’re also based on third-quarter statistics, which means it’s far too early to predict next year’s COLA.