{"id":8693,"date":"2024-11-28T08:19:23","date_gmt":"2024-11-28T08:19:23","guid":{"rendered":"https:\/\/finderica.com\/federal-employee-pay-raises-vs-retiree-colas\/"},"modified":"2024-11-28T08:19:23","modified_gmt":"2024-11-28T08:19:23","slug":"federal-employee-pay-raises-vs-retiree-colas","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=8693","title":{"rendered":"Federal Employee Pay Raises vs. Retiree COLAs"},"content":{"rendered":"<div>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter size-full wp-image-40804\" src=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/06\/money-dollar-bills-DP_165381128_L.jpg\" alt=\"\" width=\"2000\" height=\"1335\" srcset=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/06\/money-dollar-bills-DP_165381128_L.jpg 2000w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/06\/money-dollar-bills-DP_165381128_L-300x200.jpg 300w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/06\/money-dollar-bills-DP_165381128_L-1024x684.jpg 1024w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/06\/money-dollar-bills-DP_165381128_L-768x513.jpg 768w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/06\/money-dollar-bills-DP_165381128_L-1536x1025.jpg 1536w\" sizes=\"(max-width: 2000px) 100vw, 2000px\"><\/p>\n<p>With the rise in the price of gas and the vast majority of common household goods, many federal employees wonder what this means for their pay moving forward.\u00a0 Whether it is due to inflation, labor shortages, or a weak economy, everyone is asking a fair question \u2013\u00a0<em><strong>what does this mean to my take home pay?<\/strong><\/em><\/p>\n<p>The reality is that federal employees and federal retirees are treated quite differently when it comes to pay adjustments to offset the rising cost of goods.<\/p>\n<div class=\"myfed-sponsored-content-profeds-desktop\" style=\"margin-left: auto; margin-right: auto; text-align: center; margin-top: 5px; margin-bottom: 5px; \" id=\"myfed-1378702422\">\n<p>Advertisement<\/p>\n<p><a data-no-instant=\"1\" href=\"https:\/\/fedimpact.com\/attend-retirement-workshop\/?utm_source=MFR&amp;utm_medium=Del4&amp;utm_campaign=SetA124B&amp;utm_term=Box9&amp;utm_content=Style20\" rel=\"noopener nofollow sponsored\" class=\"adv-link\" target=\"_blank\" aria-label=\"retirement-button-desktop\"><img loading=\"lazy\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/01\/retirement-button-desktop.png\" alt=\"\" srcset=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/01\/retirement-button-desktop.png 728w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/01\/retirement-button-desktop-300x103.png 300w\" sizes=\"auto, (max-width: 728px) 100vw, 728px\" width=\"728\" height=\"250\" style=\"display: inline-block;\"><\/a><\/div>\n<p>In this article, I\u2019ll explain the differences between federal employee pay raises and retiree cost-of-living adjustments (COLAs) \u2013 and why you should never confuse the two!<\/p>\n<p><em><strong><span style=\"color: #800000;\">SEE ALSO:<\/span><\/strong><\/em><\/p>\n<h2 class=\"wp-block-heading\">Pay Raises While Working<\/h2>\n<p>Federal employees may receive a wide variety of different types of pay, depending on their jobs and the work that they do. To establish a baseline, let\u2019s focus on two types of pay that the vast majority of employees receive.<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>Regular pay:<\/strong>\u00a0This is the amount that is on the normal pay table (without locality pay included).<\/li>\n<li><strong>Locality pay:<\/strong>\u00a0Locality pay is a geographic adjustment based on where employees live. Employees in more expensive areas, like New York, Chicago, Washington, D.C., Los Angeles, etc., receive more pay to account for the higher cost to live there.\u00a0 You can see the full list of\u00a0<a href=\"https:\/\/www.opm.gov\/policy-data-oversight\/pay-leave\/salaries-wages\/2024\/general-schedule\/\" target=\"_blank\" rel=\"noopener\">locality pay tables here<\/a>.<\/li>\n<\/ul>\n<p>Regular pay and locality pay get added together and are displayed on the\u00a0pay tables\u00a0for each of the geographic areas.<\/p>\n<p>While an employee is working for the federal government, they\u2019re hoping for pay raises over time \u2013 and the higher, the better! There are a few ways that these increases can occur:<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>Promotions:<\/strong>\u00a0If an employee moves from a GS-9 position to a GS-10 position, that is a normal promotion. They take on more responsibility, so they get paid more.<\/li>\n<li><strong>Step increases or within-grade-increases:<\/strong>\u00a0This is essentially a longevity increase based on how long you\u2019ve been in a given pay grade.<\/li>\n<li><strong>Annual pay raises:\u00a0<\/strong>\u00a0This is the pay change that happens most often in January of a given year, and is the kind of pay increase that I\u2019m going to focus on in this article.<\/li>\n<\/ul>\n<p>With respect to federal employee pay raises \u2013 Who gets them? How are they determined? And when are they applied?<\/p>\n<div class=\"myfed-sponsored-content-profeds-desktop-2\" style=\"margin-left: auto; margin-right: auto; text-align: center; margin-top: 5px; margin-bottom: 5px; \" id=\"myfed-1138628784\">\n<p>Advertisement<\/p>\n<p><a data-no-instant=\"1\" href=\"https:\/\/fedimpact.com\/attend-retirement-workshop\/?utm_source=MFR&amp;utm_medium=Del4&amp;utm_campaign=SetA124B&amp;utm_term=Box9&amp;utm_content=Style20\" rel=\"noopener nofollow sponsored\" class=\"adv-link\" target=\"_blank\" aria-label=\"retirement-button-desktop\"><img loading=\"lazy\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/01\/retirement-button-desktop.png\" alt=\"\" srcset=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/01\/retirement-button-desktop.png 728w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/01\/retirement-button-desktop-300x103.png 300w\" sizes=\"auto, (max-width: 728px) 100vw, 728px\" width=\"728\" height=\"250\" style=\"display: inline-block;\"><\/a><\/div>\n<h4 class=\"wp-block-heading\">Pay Raises: Who gets them?<\/h4>\n<p>As far as pay raises are concerned, they\u2019re only applied to federal employees who are still working, not to retirees. The annual pay raise typically occurs at the beginning of a year, but of course, it\u2019s possible that one could occur at any other time during the year.<\/p>\n<p>With pay raises, these could be very political. Depending on which party controls the White House and Congress, pay raises can be an incredibly controversial topic. \u00a0Of course, that is not what I\u2019m going to discuss in this article.\u00a0 No politics here \u2013 just math!<\/p>\n<h4 class=\"wp-block-heading\">Pay Raises: How are they determined?<\/h4>\n<p>I\u2019m going to focus on are the financial aspects of this pay raise phenomenon. My point to mentioning that this can be a political topic is that I want you to realize that pay raises are not set in stone. It\u2019s not guaranteed that if the economy is doing well, then federal workers get a raise. That is not the way pay raises go. It is very possible that employees experience inflation in a given year, so things around them might get more expensive, but they have no pay raise authorized for that year.\u00a0 This lack of predictability for pay raises leaves many uneasy.<\/p>\n<h4 class=\"wp-block-heading\">Pay Raises: When are they applied?<\/h4>\n<p>To give you a little bit of an idea, I\u2019m sure that many of you, in the not so distant past, were in a position where you didn\u2019t receive a pay raise for three years \u2013 some groups even longer than that. So in 2011, 2012, and 2013, there were no annual pay raises for federal workers. Again, everything is getting more expensive, but their pay is just not keeping up with how expensive those things are.<\/p>\n<p>Normally, these pay raises are determined at the end of a given year (again, very political), and they\u2019re applied the following January in the very first pay period of the year.\u00a0 Everyone loves getting pay raises, but they\u2019re not guaranteed, nor are they set in a standard way based on economic conditions.<\/p>\n<p>But retirees are a different story\u2026<\/p>\n<h2 class=\"wp-block-heading\">Cost of Living Adjustments in Retirement<\/h2>\n<p>Retirees are going to operate under a completely different set of rules as far as how their check changes each year. To be clear, retirees are not affected by the annual pay raise that I just described.\u00a0<em>Those annual pay raises are only for employees.<\/em><\/p>\n<p>For retirees, they receive a CSRS or FERS pension, and that pension will change over time based on specific economic conditions. This increase is called a cost-of-living adjustment (or COLA). There\u2019s a formula to get this number, so it takes any political nature out of the equation. The President does not sign COLAs into effect and Congress doesn\u2019t approve them.\u00a0COLAs just happen.\u00a0<em>Again, those COLAs are only for retirees.<\/em>\u00a0This is quite different than what they have experienced while they had been working all those years.<\/p>\n<p>So again, for retirees, this change in pay is called a COLA, or a cost-of-living adjustment. I never refer to this change in pay as a pay raise for retirees, because that is very different, and I don\u2019t want there to be any confusion between the two.<\/p>\n<h4 class=\"wp-block-heading\">COLAs: How often is it measured and by whom?<\/h4>\n<p>Each year, the Bureau of Labor Statistics releases a number called the Consumer Price Index for Urban Wage Earners and Clerical Workers (or \u201cCPI-W\u201d for short).\u00a0 In reality, the CPI-W is measured on an ongoing basis throughout the year \u2013 but for purposes of adjusting pensions and Social Security benefits, it uses the CPI-W for the 3rd quarter of a year as its yardstick and compares it to the 3rd quarter of the previous year to determine how things have changed.<\/p>\n<h4 class=\"wp-block-heading\">COLAs: What does it really measure?<\/h4>\n<p>The Bureau of Labor Statistics has set a \u201cbasket of consumer goods,\u201d whether it\u2019s gas, other forms of transportation, food, etc. \u2014 all of these different goods that the average consumer purchases. They basically watch the cost of these goods over time and that determines how much the economy has changed. The CPI-W, this number that the Bureau of Labor Statistics releases, is expressed as a percentage. It\u2019s that percentage that is used to determine the change in a federal retiree\u2019s pension check.<\/p>\n<h4 class=\"wp-block-heading\">COLAs: When does it get applied?<\/h4>\n<p>When you begin receiving COLAs is largely determined by what kind of category you fall in:<\/p>\n<ul class=\"wp-block-list\">\n<li>Regular FERS retirees begin receiving COLAs to their pension at age 62 (or retirement, if later).<\/li>\n<li>Regular CSRS retirees begin receiving COLAs to their pension immediately (regardless of age).<\/li>\n<li>Special Provision Employees begin receiving COLAs to their pension immediately (regardless of age).<\/li>\n<\/ul>\n<p>COLAs are officially set in November each year (effective in December and payable in January). The first year COLA is determined by the # of months in the prior year (November \u2013 October) a person was retired.\u00a0 For instance, if you retired 10\/31, you would receive 1\/12th of the published COLA percentage the following January.<\/p>\n<h4 class=\"wp-block-heading\">COLAs: Do CSRS and FERS retirees get the same COLA?<\/h4>\n<p>It stands to reason that since we have two different retirement systems (CSRS and FERS), that they may be affected by COLAs in different ways.<\/p>\n<p>The COLA is not applied the same to CSRS and FERS retirees. CSRS retirees will always get whatever that CPI-W number is, but FERS retirees typically get some sort of variation of that number, which of course, is lower. In our workshops, we tell our attendees that CSRS retirees get COLA, and FERS retirees get \u201cdiet COLA.\u201d<\/p>\n<p>Over the last 10 years, CSRS retirees have averaged an increase of about 2.75% each year. For FERS, that number is 2.37%, so FERS are a little bit further behind than the average CSRS employee.<\/p>\n<p><img loading=\"lazy\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-41674\" src=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/11\/pay-COLA-2024_v3.jpg\" alt=\"\" width=\"667\" height=\"473\" srcset=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/11\/pay-COLA-2024_v3.jpg 711w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2024\/11\/pay-COLA-2024_v3-300x213.jpg 300w\" sizes=\"auto, (max-width: 667px) 100vw, 667px\"><\/p>\n<p>While someone is still working, there are some years where they won\u2019t receive an annual pay raise \u2013 the same thing is possible for retirees. I wish I could say that retirees will always receive an increase to their pay, but the reality is, some years there are no changes.<\/p>\n<p>For instance, in 2016 there was a 1.0% pay raise for those still working, but there were no increases to a CSRS or FERS retirement check.<\/p>\n<p>A big point that I want to make to federal employees is that oftentimes employee pay raises and retirees\u2019 COLAs don\u2019t coincide with one another. Retirees might get a big increase to their pay in their retirement check, but employees don\u2019t get anything that year, and vice versa.<\/p>\n<h4 class=\"wp-block-heading\">COLA: How does locality pay affect COLAs?<\/h4>\n<p>This is a trick question!\u00a0 Locality pay is reserved only for employees. Remember, that was the geographic pay based on where someone lived and how much extra money they got in their normal paycheck to account for the higher expense of living there. That locality pay adjustment only happens for employees (not retirees). However, when employees are preparing to retire, one of the figures that will be calculated is called the \u201chigh-3\u201d average salary.\u00a0 This figure will be used in the calculation of the initial\/starting CSRS or FERS pension.<\/p>\n<p>The \u201chigh-3\u201d\u00a0does\u00a0include locality pay if it\u2019s included in an employee\u2019s highest three years of earnings. Let me give you an example. I use to live in the Chicago area, and there\u2019s a pretty significant locality pay here. If I were a federal employee, and I earned my highest three years of consecutive earnings (including locality pay) there in Chicago, then my pension would be calculated essentially giving me credit for that locality pay.<\/p>\n<p>But once I\u2019m retired, if I later decide to leave Chicago and move to an area that\u2019s much less expensive (perhaps even to an area that doesn\u2019t have any locality pay for those people who are still employed), then my retirement check doesn\u2019t go down. Unfortunately, the same can be said if the opposite happens. If I earn my highest three years of earnings in a location that does not have locality pay (and that is what my pension is based on), but then I later move to an expensive area as a retiree, my retirement check does not go up.<\/p>\n<p>I can, in good faith, say that locality pay is not applied in retirement, but what I really want to drive home is that it can be included in the initial calculation of the pension \u2013 but that\u2019s it. Where you decide to live in retirement will not really impact the retirement check you receive, and that can either be good or bad.<\/p>\n<p><span class=\"cp-load-after-post\"><\/span><\/p>\n<div class=\"myfed-chris-kowalik-article\" style=\"margin-left: auto; margin-right: auto; text-align: center; margin-top: 10px; margin-bottom: 10px; \" id=\"myfed-1936831825\">\n<div style=\"background-color: #f5f5f5; padding: 15px;\">\n<h4 style=\"text-align: left;\">About Chris Kowalik<\/h4>\n<h5 style=\"text-align: left;\"><a href=\"http:\/\/fedimpact.com\/learn-more\" target=\"_blank\" rel=\"noopener\"><u><img loading=\"lazy\" loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-26932 alignleft\" src=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2019\/01\/ID-ChrisKowalikHeadshot-96x96-1.png\" alt=\"\" width=\"96\" height=\"95\" srcset=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2019\/01\/ID-ChrisKowalikHeadshot-96x96-1.png 96w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2019\/01\/ID-ChrisKowalikHeadshot-96x96-1-10x10.png 10w\" sizes=\"auto, (max-width: 96px) 100vw, 96px\"><\/u><\/a>Chris Kowalik is a federal retirement expert and frequent speaker to federal employee groups nationwide. In her highly-acclaimed <a href=\"https:\/\/fedimpact.com\/attend-retirement-workshop\/?utm_source=MFR&amp;utm_medium=Del5&amp;utm_campaign=SetA100&amp;utm_term=Box13&amp;utm_content=Style90\" target=\"_blank\" rel=\"nofollow noopener\"><u>FedImpact Workshops<\/u><\/a>, the <a href=\"https:\/\/fedimpact.com\/podcast\/?utm_source=MFR&amp;utm_medium=Del5&amp;utm_campaign=SetC100&amp;utm_term=Box13&amp;utm_content=Style90\" target=\"_blank\" rel=\"nofollow noopener\"><u>FedImpact Podcast<\/u><\/a>, and the <a href=\"https:\/\/fedimpact.com\/webinar\/?utm_source=MFR&amp;utm_medium=Del5&amp;utm_campaign=SetB100&amp;utm_term=Box13&amp;utm_content=Style90\" target=\"_blank\" rel=\"nofollow noopener\"><u>FedImpact Webinars<\/u><\/a>, she empowers employees to make confident decisions as they plan for the days when they no longer have to work. Chris\u2019 candid and straightforward nature allows employees to get the answers they need and understand the impact these decisions have on their retirement.<\/h5>\n<\/div>\n<h5 style=\"text-align: left;\"><span style=\"font-family: helvetica, arial, sans-serif; font-size: 8pt;\">DISCLAIMER: The information presented on MyFederalRetirement.com is provided for general information purposes. The information has been obtained from sources considered to be reliable. The information is offered with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For more information, please read our Terms of Service.<\/span><\/h5>\n<\/div>\n<div class=\"myfed-fedimpact-cta\" style=\"margin-left: auto; margin-right: auto; text-align: center; margin-top: 2px; margin-bottom: 2px; \" id=\"myfed-2022981745\">\n<p>Advertisement<\/p>\n<p><a data-no-instant=\"1\" href=\"https:\/\/fedimpact.com\/attend-retirement-workshop\/?utm_source=MFR&amp;utm_medium=Del4&amp;utm_campaign=SetA100&amp;utm_term=Box12&amp;utm_content=Style20\" class=\"adv-link\" aria-label=\"training-CTA-desktop\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/02\/training-CTA-desktop.png\" alt=\"\" srcset=\"https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/02\/training-CTA-desktop.png 728w, https:\/\/www.myfederalretirement.com\/wp-content\/uploads\/2022\/02\/training-CTA-desktop-300x103.png 300w\" sizes=\"auto, (max-width: 728px) 100vw, 728px\" width=\"728\" height=\"250\" style=\"display: inline-block;\"><\/a><\/div>\n<\/div>\n<p><a href=\"https:\/\/www.myfederalretirement.com\/pay-vs-colas\/\" target=\"_blank\" rel=\"noopener\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>With the rise in the price of gas and the vast majority of common household goods, many federal employees wonder what this means for their pay moving forward.\u00a0 Whether it is due to inflation, labor shortages, or a weak economy, everyone is asking a fair question \u2013\u00a0what does this mean to my take home pay?<\/p>\n","protected":false},"author":2,"featured_media":8694,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[348],"tags":[3093,1994,478,41,727,3092],"class_list":{"0":"post-8693","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"tag-colas","9":"tag-employee","10":"tag-federal","11":"tag-pay","12":"tag-raises","13":"tag-retiree"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8693","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8693"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/8693\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/8694"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8693"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8693"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8693"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}