U.S. Military (Ret.): COLA won’t lead to cut in pay - Military Retirement - Navy Times

U.S. Military (Ret.): COLA won’t lead to cut in pay

Military retirees are nervously watching the inflation rate and wondering what it means for the annual cost-of-living adjustment in their retired pay.

After receiving an eye-popping 5.8 percent COLA increase for 2009 — by far the largest in recent memory and almost 2.5 percentage points higher than this year’s active-duty military pay raise — the situation has taken a hard turn for the worse as the effects of the economic recession have spread.

The data that form the foundation of the COLA are tracked by fiscal year. The COLA figure is the average inflation rate over the final three months of the fiscal year, July through September.

Once that figure is known, Congress approves the increase in retiree paychecks effective Dec. 1, and the extra money first shows up in January paychecks.

Since the start of the current fiscal year Oct. 1, the inflation rate — which the Labor Department derives from frequent cost surveys of a broad “market basket” of common goods and services — has actually been a deflation rate.

Simply put, the recession has driven down average prices considerably this year. In December, the inflation rate had dropped almost five full percentage points below its level at the end of last fiscal year on Sept. 30.

Over the past few months, the rate has crept up again as the price of gas began to climb, ending June at minus 2 percent. Still, there’s a good chance the rate will stay in negative territory through the end of the fiscal year.

What does that mean for retirees? It’s been so long since the inflation rate ended a fiscal year in negative territory that a number of retirees have written to me wondering if retirement pay might be cut next year.

The answer: Absolutely not.

Federal cost-of-living adjustments for military retirees, Social Security recipients and others are, by law, not allowed to go “negative” in any given year.

The worst that could happen would be no COLA increase. And in a way, that’s better than a typical COLA increase.

The COLA is designed to keep the purchasing power of military retirement pay in step with the rising costs of common goods and services. But if those costs fall while your retirement pay remains steady, your purchasing power doesn’t just keep pace with inflation — it increases.

If you look at it that way, it’ll be easier to stomach the forecasts from the Congressional Budget Office that the effects of the recession will linger for several years. That will continue to have a dampening effect on inflation — and on annual COLA increases.

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Retired Command Master Chief Alex Keenan served 28 years in the Coast Guard. E-mail him at retired@atpco.com.