Each year your military retirement pay is adjusted to meet the increased cost of living. This Cost of Living Adjustment varies from year to year based on the rise and fall of the Consumer Price Index (CPI).
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 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.
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 COLA in any given year. In fact there are two categories of military retirees who won't receive a COLA each year.
Those who retired in the previous year: Some servicemembers who retired during the previous year 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.