Many federal retirees are uncertain about the size of the cost-of-living adjustment (COLA) that CSRS, FERS, and survivor annuitants would receive in 2023 after much debate about the high cost of living due to soaring inflation in 2022.
This article explains COLA, how it is calculated, and how it impacts CSRS and FERS annuities, survivor annuities, and other federal employee death benefits.
Method of Calculating COLAs and CSRS
The cost-of-living adjustment (COLA) given to CSRS/CSRS Offset annuitants is the same as the COLA given to Social Security disability and retirement benefit recipients. The COLA amount is calculated each year based on the percentage change in the base quarter price index from the previous year to the base quarter price index of the current year, rounded down to the nearest one-tenth of one percent. The COLA for CSRS/CSRS Offset annuitants and Social Security benefit recipients in 2022 was 5.9%, and it went into effect on December 1, 2021. Based on the data in the table, we arrived at the 5.9% estimate:
When calculating a CSRS/CSRS Offset annuitant’s new gross monthly annuity, which takes into account the COLA, the previous year’s gross monthly annuity is multiplied by the COLA factor (one plus COLA percentage).
The CSRS monthly annuity is rounded to the nearest dollar. Gross monthly annuity must increase by at least $1.00 once a COLA is implemented.
Illustration I
The preceding fact is depicted in this illustration. Jim, an annuitant of the Civil Service Retirement System (CSRS), retired from the federal government in 2014. After subtracting a $500 survivor annuity fee and a $100 unpaid deposit, Jim’s monthly CSRS net annuity for 2021 was $4,500. Because of this, Jim’s CSRS gross monthly annuity for 2021 was $5,100, which equals $4,500 plus $500 plus $100. Jim received the full 5.9 % COLA beginning on December 1, 2021. This increase was shown in his annuity check for the first time on January 1, 2022, and was calculated as follows:
It is essential to remember that the yearly COLA is applied before any deductions are made for federal and state income taxes, as well as deductions for health, life, dental, vision, and long-term care insurance premiums. Furthermore, when the COLA factor is used, the CSRS gross annuity is always rounded to the nearest lower dollar.
Illustration II
Judy is a CSRS retiree and received her pension on January 2, 2021. Judy’s CSRS annuity began on January 3, 2021, and she received her first payment on February 1, 2021. From January 3, 2021, through December 31, 2021, Judy got 11 CSRS monthly annuity payments. A CSRS annuity check was sent to her on February 1, March 1, April 1, May 1, June 1, July 1, August 1, September 1, October 1, November 1, and December 1. As a result, Judy was eligible for 11/12 of the 5.9% COLA for 2022, or 11/12 of 5.9% (the 2022 COLA) equals 5.4 % (Judy’s 2022 COLA amount).
Illustration III
Jim is a CSRS annuitant who plans to retire from the federal government on May 31, 2021. He received his first CSRS annuity check on July 1, 2021, and his annuity started on June 1, 2021. Jim received six CSRS annuity payments between June 1, 2021, and December 31, 2021. (July 1, August 1, September 1, October 1, November 1, and December 1). As a result, Jim was entitled to 6/12 of the 5.9 % COLA scheduled to take effect in 2022.
Jim’s 2022 COLA will be 2.9 % or 6/12 of 5.9 %. Amount of COLA for CSRS Survivor Annuitants (Including Spouses, Former Spouses, Insurable Interest)
After the annuitant’s death, a survivor annuity under CSRS is started for their surviving spouse, former spouse, or insurable interest (i.e., someone who is a blood relative of the annuitant but is not a first cousin, like a kid, sibling, or parent). As of January 1, following the annuitant’s death, CSRS survivor annuitants are eligible to receive all or a portion of the annual COLA. The amount of the first-year cost-of-living adjustment for the survivor annuity will depend on when the annuitant passed away after leaving federal service. The following rules will determine a survivor annuitant’s first-year COLA.
Illustration IV
On November 30, 2019, Jessica, a federal employee, announced her retirement. A CSRS annuity cheque for the first day of 2020 arrived in the mail for her. Her CSRS annuity was increased by 2.0 % on December 1, 2020, and she continued to receive them throughout 2020. In March 2021, Jessica abruptly died. On April 1, 2021, her husband, Howard, earned his first CSRS survivor annuity. On December 1, 2021, Howard’s survivor annuity payment earned a 5.9% COLA. On January 1, 2022, Howard’s CSRS survivor annuity check first showed the 5.9% COLA.
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I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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