Military retirement, VA compensation, and social security checks are due for a possible Cost-of-Living (COLA) increase in January. Just how much that will be remains to be seen, but signs are pointing to the biggest raise in seven years.
How Is The Military Retirement COLA Calculated?
Before you go about lauding or criticizing any politician or political party for this increase (because everything is political on internet comments these days), let's look at how the COLA works.
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
- Housing
- Apparel
- Transportation
- Medical care
- Recreation
- 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.
Enough Economics - What Is The Bottom Line?
Each year, the government takes the CPI average for the third quarter (July to September) and compares it to the same period for previous year. If the CPI increases then the COLA will match that increase.
As of July 2018, the CPI had increased 2.9 percent from 2017. So, if there is zero inflation for August or September, you may be looking at a 2.9 percent pay raise for 2019. The more likely situation is at least a 3.1 or 3.2 percent increase for next year. That would be the highest increase since 2012.
Of course, things happen. Last year we were looking at a zero CPI for 2018 and then a couple of hurricanes hit Florida and Texas driving gasoline prices up nearly 14 percent for the last 3 months of the fiscal year. Based on that we saw a 2 percent COLA for retired pay & VA benefits in 2018.
The Bad News
Of course, for these payments to go up means that you are actually paying more for everything than you did last year. Since the increase is based on the Consumer Price Index (CPI), which is based on a sample of what the average American pays for the necessities of life, your increase will probably be offset with higher prices at the grocery store, gas pump, and everywhere else you spend money.
Politicians has been tweaking the rules on military retirement COLA every year, using different CPI calculations, and even adding a "chained CPI" provision last year. The "chained CPI" means that if the price of cereal goes up at one grocery store the average consumer will buy a different brand or go to a different store. Many economists, retirement groups, and lobby groups say that these adjustments actually hurt older consumers and retirees.
Still, getting a 3 percent bump in your monthly check is better than a poke in the eye with a sharp stick.
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