The Social Security Administration (SSA) has announced the Cost-Of-Living-Adjustment (COLA) for 2025. Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2023 through the third quarter of 2024, Social Security beneficiaries will receive a 2.5% COLA for 2025 which is less than the 3.2% COLA in 2024.
Starting in January, federal retirees covered under Civil Service Retirement System (CSRS) will receive the full 2.5% COLA added to their monthly annuity (pension). However, federal retirees covered under the Federal Employees Retirement System (FERS), will only receive a 2% COLA.
The FERS Diet COLA
Nicknamed the FERS Diet COLA, cost-of-living adjustments for FERS retirees 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 under the Reagan Administration.
It was decided that a lower COLA for FERS retirees was justified because they benefit from the Thrift Savings Plan (TSP), including an agency match, plus their monthly annuity (pension) and Social Security retirement income. Experts point out that the lower cost-of-living adjustment will result in a loss of purchasing power as more people retire under FERS.
The FERS COLA Age Restriction
Another rule that doesn’t seem fair – FERS retirees don’t receive COLAs 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, and air traffic controllers. It’s also important to note that survivor beneficiaries under FERS and CSRS receive COLAs regardless of their age.
“You’ll also have a few more years to contribute to your Thrift Savings Plan (TSP) and get your agency match.”
Working Longer Can Help Mitigate The FERS Diet COLA
Currently, most federal retirees are covered under CSRS. However, in the coming years, more and more federal workers will be retiring under FERS and feeling the pinch of the Diet COLA as inflation rises.
One way to help mitigate the erosion of your pension due to the FERS Diet Cola is working longer. When you retire at age 62 with at least 20 years of service, you’re eligible for the FERS 10% Bonus added to your annuity (pension). You’ll also have a few more years to contribute to your Thrift Savings Plan (TSP) and get your agency match. 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.
To learn more about maximizing your retirement income, connect with an FRC® trained advisor.
