NOVEL THINKING

Social Security benefits will be effective beginning with December 2020 benefits, which are payable in January 2021. She’s going for that delayed January pension. The first COLA adjustment after retirement is calculated under a formula different than that above, if the member retires between January 1st and September 31st. COLA is based on the percentage increase of the Consumer Price Index for Urban Wage Earners and Clerical Workers for the third quarter of this year. You should strongly consider opting in before the end of 2018. I projected out so that all those under the retirement program can predict approximately how much they will make when they retire. This was supposed to motivate O-4s with more than 18 years of service to stick around for a few more years, but my retirement date had been approved long before the pay tables were published. Disclaimer: This is a privately owned website and is not affiliated with the U.S. government, Department of Defense, Department of Veterans Affairs, or any other government agency. Copyright © 2020 The Military Guide. It is based on the percentage increase of the CPI-W from the 3rd quarter of the previous year versus the current year’s 3rd quarter (July, August, and September). There’ve been a few exceptions (in April 2007 the military shifted to 40-year pay tables) but the tradition has become 1 January. Will COLA always reflect in a perfect way or capture true inflation many experience, especially an older demographic who consume more health care? Projections are based on current retirement plans, average military pay increases and average COLA rates. You got the 2.4% military pay raise, but in December, only got 2.4% COLA as opposed to the full 2.8% had you retired in 2017. And if I did my math correctly, the advantage of January 1, 2018 over December 31, 2017 was 2%. If you would like to find more information about benefits offered by Veteran Affairs, visit the official site for veterans benefits at Veterans Affairs. You may have little power over what a COLA may be any given year. The specific COLA wording is in federal law, Title 10 U.S. Code section 1401a(d). We’ll update this post in 2022. Those who retired before October 2016 got the full 2017 COLA of 0.3%. This site may be compensated through the advertiser Affiliate Program.

Here’s the link to download a PDF of the research paper: “The COLA Trap: Picking the Wrong Retirement Date Could Cost You Thousands” by Douglas Fowler. In other words, the COLA is one of the least significant issues in the timing of a military retirement. [Disclaimer: I’m not an accountant or an actuary, and I don’t have have any three-letter financial certificates after my name.

This inflation math is why a financially-independent military retiree can invest heavily in a high asset allocation of stocks and carry a mortgage with less risk of losing principal. Well, that’s another problem.

It follows that the later in the year you wait to retire, you’re losing out on COLA at the end of that first year. The military retiree COLA for 2018 is 2.0%. In the event of a decrease in the CPI, the COLA will not be negative, but will be zero. Your personal rate of inflation is different from mine, and we all differ from the national average. Please tell your friends you read it here. (In real dollars, not nominal ones.) WHAT I DO: I help you reach financial independence. Make sure you’re contributing at least 5% to your Thrift Savings Plan for the full DoD BRS matching contributions.

Thus, retirement pay COLAs and annual active duty pay raises will differ as active duty pay raises will differ. Here’s the military SECDEF COLA memo for 2018. No. Even after the reset, your COLA reverts back to that “CPI-1%” rate and continues to lose ground to High Three for the rest of your life. Here’s the next point of confusion: which COLA are we discussing? A very few servicemembers are under an even older retirement system known as Final Pay. Caution for Reserve/Guard servicemembers with a DIEMS date after 7 September 1980: you’re under High Three or BRS. Now will inflation rise above the Fed’s target 2%? If I make an error then I’m pretty sure I’ll be swiftly educated by a financial professional who had to pass an exam on the topic, and I’ll update this post.].

My spouse (a Reserve Final Pay retiree) was born late in the year. Finally, the amount of pay & allowances earned during the final year is a far greater effect on the size of the pension than the COLA in the following year.

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