Federal retirement and Social Security benefits to increase by 1.3% in January

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Federal retirement benefits will be increased by 1.3% in January, the same as the upcoming increase in Social Security benefits that was announced Tuesday.

The cost-of-living adjustment, or COLA, will go to almost all of the nearly 2.2 million federal retirees plus about 500,000 survivor beneficiaries. The figure is about average for the past 10 years, when the boosts have ranged from zero to 3.6%; a 1.6% increase was paid at the start of this year.

The increase applies only to annuity benefits for retirees, not to the salaries of current federal employees. Retiree COLAs are set automatically by an inflation index whose annual count concluded with the announcement Tuesday of figures through September.

In contrast, current employees receive pay raises set through the annual government budget process. No decision has been reached regarding a January 2021 raise.

President Donald Trump has recommended a 1% pay raise, while Congress so far has taken no position. If no figure is enacted into law by the end of the year, that amount will take effect automatically. Some members of Congress continue to advocate for increasing the figure to 3% to match the planned raise for military personnel.

For retirees, some COLA policies vary depending on which of the two main federal retirement systems applies to them.

All of those retired under the Civil Service Retirement System, applying only to employees first hired before 1984, receive a full COLA regardless of age. Although that program applies only to about 5% of current federal employees, 59% of retirees, just under 1.3 million, draw their benefits from it.

Those retired under the newer Federal Employees Retirement System do not receive inflation adjustments until passing age 62, unless they were disabled or worked in positions requiring earlier retirement, such as law enforcement.

Under both systems, inflation adjustments are reduced for those who have been retired for less than a year at the time of a payout.

As of September 2019, the average monthly benefit under CSRS was $3,939 and the average FERS benefit $1,576. After accounting for the increase paid in January, the upcoming COLA will be worth about $52 and $21 per month on average, respectively.

Average benefits to survivors of deceased retirees – which also are inflation-adjusted – were $1,710 and $620 per month under CSRS and FERS, respectively, a year ago.

The FERS program yields a smaller benefit because it includes Social Security coverage and employer contributions toward Thrift Savings Plan retirement accounts, two features absent from the CSRS program.

The value of the inflation adjustment commonly is compared with the average increase in premiums under the Federal Employees Health Benefits Program, in which most federal retirees remain enrolled. The Office of Personnel Management has not yet announced rates for 2021.