2014 COLA Watch: The 2014 COLA rate is officially set at 1.5%. 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 2014.
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 2014 COLA was based on the 2012 rate of inflation. The 2013 rate of inflation was up only 1.5%.
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 1.5% COLA. In fact there are two categories of military retirees who won’t receive a 1.5% COLA in 2014.
Those who retired in 2013: Some servicemembers who retired during calendar year 2013 will receive a somewhat smaller, partial COLA for this year only, because they weren’t in retired status for the full year. Their partial COLAs generally reflect the amount of inflation experienced in the calendar quarters since they retired.
Those who retired under REDUX: Servicemembers who entered service on or after Aug. 1, 1986 and who elected to accept a $30,000 career retention bonus at the 15-years-of-service point 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 0.5% COLA this year.