You’ve probably read the headlines: the 2023 Cost Of Living Adjustment is the largest increase since 1981. The average retiree collecting Social Security will see a monthly increase of around $144 in payments. According to the SSA, this will bring the average monthly Social Security benefit up to approximately $1,827.
At this point in time, the vast majority of federal retirees are covered under CSRS and eligible to receive the same 8.7% increase in their monthly CSRS pension check. However, COLAs for retirees covered under FERS are calculated differently. As more and more FERS participants retire, it’s important to understand why.
The Basics: How The COLA Is Calculated
The Department of Labor’s Bureau of Labor Statistics (BLS) calculates the COLA by comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August and September of the current year, to the average CPI-W for the previous year. That percentage change becomes the annual COLA for Social Security payments.
However, there continues to be some controversy questioning if the CPI-W gives an accurate picture of retirees’ expenses. Advocates for retirees point out that, when automatic COLAs started in 1975, the CPI-W was the only national price index available. Fast forward to today and the CPI-W represents approximately 29% of the population. As a result, critics say COLAs don’t realistically reflect cost of living expenses for seniors.
CSRS Annuitants Get The Full 8.7% COLA
Starting in January, 2023, retired CSRS annuitants will receive the full 8.7% COLA added to their monthly annuity (pension). CSRS Offset annuitants who are eligible for Social Security Retirement Benefits will also see the 8.7% bump in their monthly Social Security Check.
“In 2022, legislation introduced to Congress proposes correcting the inequality suffered by FERS annuitants: The Equal COLA Act.”
FERS Annuitants Get A Lower 7.7% COLA
The COLA for FERS annuitants is calculated under a different formula. FERS COLAs are capped at 2% when consumer prices increase between 2% and 3%. Or, they are reduced by 1% when consumer prices increase by 3% or more.
In 2022, legislation introduced to Congress seeks to correct the inequality suffered by FERS annuitants: The Equal COLA Act. If passed by the House and Senate, FERS retirees will get the same full COLAs CSRS annuitants receive. Of course, FERS retirees are also eligible for Social Security benefits which means their Social Security check will get the full 8.7% COLA bump.
Will inflation rise in 2023? Though a lot depends on improving supply chain and labor issues, inflation is expected to decline in 2023 to around 6%.
