Military retirement pay is one of the top three benefits of military service along with medical and other benefits. Understanding how to calculate military retirement pay involves understanding the the final pay and high 36-month average methods. Also, all military retirements are protected from inflation by annual Cost of Living Adjustments (COLAs)
Cost-of-Living Adjustment Explained
Each year Military Retirement pay, Survivor Benefit Plan Annuities, VA Compensation and Pensions, and Social Security benefits are adjusted for the rate of inflation. This annual COLA is determined by the Consumer Price Index for the previous year. The CPI is compared to the previous year, if there is an increase there is a COLA. If there is no increase, there is no COLA.
Without getting too detailed, most federal benefits including military retirement, VA compensation, and social security COLAs are tied to the Consumer Price Index (CPI). Things have been that way for decades.
There are several different CPI measurements and weird ways of calculating it, but just remember that all CPIs are based on what the "average" consumer pays for what the government considers a basic "market basket" of stuff everybody needs to buy like:
- Food and beverages
- Medical care
- Education and communication
- Other goods and services
So when these prices go up the COLA for military retirement, VA benefits, and social security will increase too. If they don't go up over the year, you don't get any COLA increase. This has happened as recently as 2016.
Exceptions To The Cost Of Living Increase
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 COLA increases reduced by 1 percent.
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