According to the 2024 Senior Survey conducted by The Senior Citizens League, over 70% of seniors who responded say that the 3.2% COLA they received this year is not enough to keep up with the rising cost of their living expenses. Add to this, 53% said they’ve already spent their emergency savings and 61% say food is the expense that has increased the most. Since federal workers who retire under FERS receive reduced COLAs on their pension, they’ll likely be feeling the pinch of inflation rises over a long retirement.
The FERS Diet COLA
FERS COLAs are capped at 2% when consumer prices increase between 2% and 3%. They are reduced by 1% when consumer prices increase by 3% or more. This has been the policy since the creation of FERS in 1986. Back then, it was decided a lower COLA for FERS participants was justified because they benefit from the Thrift Savings Plan (TSP), including an agency match, plus their annuity and Social Security retirement income.
The FERS COLA Age Restriction
Another rule that doesn’t seem fair – CSRS or CSRS Offset retirees receive a COLA bump to their annuity regardless of their age. But those who retire under FERS don’t receive COLAs on their pensions until they turn age 62. The only exceptions are for those who retired on disability or under the special retirement provisions for law enforcement officers, firefighters, or air traffic controllers.
“And, since your Social Security benefit is based on your highest 35 years of lifetime earnings, working longer can boost the amount of your benefit.”
Protect Your Retirement Against An Erosion Of Purchasing Power
Since COLAs are failing to keep up with inflation, it’s important to anticipate the loss of purchasing power over a long retirement. Otherwise, you may find yourself burning through your Thrift Savings Plan (TSP) and other accounts to cover your living expenses.
One strategy is working a little longer. If you wait to retire until age 62 with at least 20 years of service, the FERS 10% bonus can increase your pension considerably. Working longer also enables you to contribute more to your TSP account and get the 5% agency match. If you’re 50 or older, you can take advantage of Catch-Up Contributions in addition to your regular contributions. And, since your Social Security benefit is based on your highest 35 years of lifetime earnings, working longer can boost the amount of your benefit.
You may also want to consider using your TSP funds to purchase a Fixed Indexed Annuity (FIA) that provides a guaranteed stream of retirement income for as long as you live. To learn more about protecting your retirement, work with FRC® trained advisor.
