Cost of Living Adjustments (COLA) affect Social Security, retirement pay and veterans benefits like Department of Veterans Affairs disability compensation, annual military-base-pay cost-of-living increases, and location-based cost-of-living increases.
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COLA is an acronym for cost-of-living-adjustment which is an increase applied to certain types of income to help combat inflation. In 2024, the Social Security Administration (SSA) announced a COLA increase of 3.2%, based on inflation-related data from the U.S. Department of Labor.
The military community is especially impacted each year if COLA rates increase. In particular, it’s vital for those living off their military retirement plans, veterans living with a disability they suffered during their time serving, or service members receiving monthly allowances for food.
Update: The Social Security Administration announced COLA will increase 2.5% in 2025.
How COLA Rates Affect Military Programs
COLA is pivotal to the lives of service members and veterans because of its role in:
- VA Disability Pay
- Social Security Payments
- Basic Allowance for Subsistence (BAS)
- CONUS and OCONUS COLA (Location-based adjustments for particular areas with a higher cost of living)
- Military Survivor Benefit Plan
Essentially, COLA increases ensure the money you may receive on a fixed pay rate still holds spending power for daily goods and services.
Your location impacts COLA rates. Continental U.S. cost of living adjustment (CONUS COLA) is a taxable benefit added to military pay to offset higher living costs in certain U.S. areas. This adjustment applies when local costs exceed the national average by 8% or more. This affects about 54,000 service members in 21 military housing areas.
If you’re stationed in Alaska, Hawaii, or abroad, you’ll likely receive the Outside Continental U.S. cost of living adjustment (OCONUS COLA). This non-taxable supplement depends on your rank, years of service, and number of dependents. OCONUS COLA accounts for higher living costs and exchange rates in foreign regions.
Federal law ties veterans’ benefits to COLA increases, however, Congress must pass a new version of the Veterans’ Compensation Cost-of-Living Adjustment Act each year.
Historical COLA Rates for Military Retirement Pay
Cost of living adjustment rates vary each year, given the change in inflation. Below is a historical record of military retirement COLA pay raises:
Annual COLA increases are larger in years with higher inflation. Conversely, there was no COLA increase in 2010, 2011, or 2016 because of low inflation.
Note: While COLA affects things like VA disability pay, Military retirement pay, etc. It does not impact Military Pay and Drill Pay for Reserves/National Guard. Congress determines the rate of pay increase for service members each year in the National Defense Authorization Act, which serves as the Defense Department’s spending bill.
How to Calculate COLA Increases
The Department of Labor’s Bureau of Labor Statistics surveys over 80,000 goods and services to determine the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Increases in costs for goods and services will cause an increase in COLA for the following year. If there is no change or decrease in the cost of goods and services, there is no increase in the COLA. However, price decreases don’t decrease COLA-based benefits.
The Social Security Administration’s COLA rates act as a math equation each year. To apply the COLA adjustment, multiply the COLA rate percentage by what you earn or qualify for in the affected programs. Then, add that calculation to your current earnings or benefit to find the adjusted total.
For example, take this year’s 3.2% increase, if someone was making $500 in 2023, they would now make $516 because 3.2% of $500 is $16. So you would add $16 to the $500.
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Michael says
The first group of CSB/Redux selectees should be coming up on the catch-up soon, and it would be a great article and interesting to see how other people faired with Redux, I think I did pretty good and tripled the CSB, within 2 years of the catch-up phase too. I had hoped to make E-8 and do 24 years and it would have offset the retirement. Active duty had other plans and ended up retired as an E-6 over 20.
My CSB went directly into TSP after taxes. (Which will be super fun to calculate after tax pay from a retirement plan) I left it there the 1st five years but realized growth would be impacted by not being able to contribute so all but a fraction is moved (leave that TSP open as an option!) to a brokerage account with a spread of 6 mutual funds to cover market sectors. 2022 has been brutal on investments but all things considered the total value is over 100k.
All of the comparison calculators that existed don’t work or target only active duty (I don’t even know if CSB/Redux is a thing anymore) so it’s impossible to calculate the difference as I can’t even find the COLA rates that go back to when I retired.
I never did any risky investments, past a commodities sector mutual fund. If I were to do it over or now I would definitely due a dividend re-investment focused ETF or three, but that is still on the horizon for my full retirement at, you guessed it 62. The final catch-up. How does that even work? Is it one time or what? Everything I find is so vague.
I just hope everyone or anyone that took CSB/Redux did as well or better than I.