The difference between COLA and a pay raise

The difference between COLA and a pay raise

Many people have asked me about my approach to retirement. How should one strike a perfect balance between the yearly cost-of-living adjustments to retirement benefits and the increase in employee income? Even though the answer to this concern is not as easy as it may sound, the aim is to grasp how the two increases work.

Adjustments of January Pay

Besides the length of your tenure, the pay given to a federal employee every year increases factor into your average salary. This signifies the importance that the retirement benefits hold for a federal employee.

An employee’s high-three salary can have many changes based on their functionality. These Pay changes can be either step increases, promotions, or January Pay Adjustments. Let’s take an example. The employee’s high-three will be greater if they choose their retirement on December 31, 2022, rather than December 31, 2021. The sole reason is that if you were to retire on June 30, 2022, your January 2 pay change would be in place for five months and 29 days out of the last three years.

For most federal employees, the January pay change gets an increase of 2.2% to basic pay and an expansion of the locality pay to 0.5%. So this year, President Biden has presented a proposal for a federal income of 4.6%. This marks the highest record in 20 years. But, whether congress would support this proposal is still unknown.

COLA- Cost Of Living Adjustments

The COLAs serve many purposes for retired federal employees and those who served in the military. Most of these purposes are to provide financial security to the employees after retirement. These adjustments deal with the affordability of groceries, gas, and property expenses. COLAs help with the routine costs of retirees. The latest inflation suffered by many allows us to appreciate the COLA grants. These grants do not change with the fluctuating inflation; yet, these are better than the inadequate pensions provided by private companies.

The COLA grants are only applicable to your gross monthly help. Civil Service Retirement System gives its retirees grants, regardless of age, whenever required. But, the Federal Employees Retirement System does not provide COLA grants to retirees under 62.

You’ll receive your first COLA grant depending on the months you were under an annuity contract. Non-eligible FERS retirees will receive a full COLA, excluding the proration.

Choosing a retirement date based on COLA and pay change is essential. But, the critical question should be, ‘is it suitable for me to retire?’ All the above information will help you decide to maximize your retirement income.


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