2013 COLA for Retired Pay and Compensation

2013 COLA Watch: The 2013 COLA rate is officially set at 1.7%. This will mean an increase in military retirement pay, VA rates for compensation and pension for disabled veterans and surviving families, and social security recipients beginning in January of 2013.

Cost-of-Living Adjustment Explained

Each year Military Retirement pay, Surviver Benfit Plan Annuities, VA Compensation and Pensions, and Social Security benefits are adjusted for the rate of inflation. This annual Cost of Living Adjustment is determined by the Consumer Price Index for the previous year. In a normal cycle the CPI for a given year is compared to the previous year to determine the actual rate of inflation.

For example, the 2013 COLA will be based on the 2012 rate of inflation. The 2012 rate of inflation was up only 1.7%.

Note: Retiree Cost of Living Adjustment (COLA) differs from the Active Duty Cost of Living Allowance which is paid based on the cost of living in a given high-cost locality. This number will be released in late December.

More on Retiree COLA  from DFAS:

Cost-of-Living Increases: Perhaps the most common change to retiree pay accounts are the Cost-of-Living (COLA) increases. Currently, federal law authorizes periodic increases to reflect rises in the Consumer Price Index (CPI). COLA increases impact your monthly gross pay, federal withholding tax, SBP premiums and annuities. While DFAS does not establish COLA increases, the agency does apply any authorized increases to your pay, SBP premiums and other account information.

COLA is applied depending on your date of entry into the armed forces and your date of retirement. If you entered service on or after Sept. 8, 1980, and became eligible for retired pay on or after Jan. 1, 1996, any authorized COLA will be decreased during your first calendar year of retirement. Full COLA increases will be applied for all subsequent years. Retirees who entered military service on or after Aug. 1, 1986 and opted in for the Career Status Bonus (CSB/Redux retirement plan), will have any authorized COLA increases reduced by 1 percent.

Not all retirees will see the full 1.7% COLA. In fact there are two categories of military retirees who won’t receive a 1.7% COLA in 2013.

Those who retired in 2012: Servicemembers who retired during calendar year 2012 will receive a somewhat smaller, partial COLA for this year only, because they already received a January military pay raise (which also raised their 2012 retired pay).

Members who retired between Jan. 1, 2012, and Sept. 30, 2012, will receive a partial COLA based on the calendar quarter in which they retired. Jan.-Mar. retirees will receive 1.7%; Apr.-Jun. retirees, 1.0%; and Jul.-Sept. retirees 0.2%. Those who retire after Oct. 1, 2012, will see no COLA this year. Members retired during 2012 will receive full-year COLAs in future years.

Those who retired under REDUX: Servicemembers who entered service on or after Aug. 1, 1986 and elected to accept a $30,000 career retention bonus at 15 years of service agreed to accept reduced retired pay and COLAs as a trade-off for the bonus. REDUX retirees’ COLAs are depressed 1% below the normal COLA rate, so they’ll see a 0.7% COLA.

According to our friends at the Military Officers Association of America, the 1.7% 2013 COLA will be the fourth-lowest COLA since the turn of the century – trailing only the zero-COLA years of 2009-10 and the 1.4% of 2002