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Next retiree COLA could be tiny, analysts say

The cost-of-living adjustment for retirees next year could test the idea if something really is better than nothing.

After getting no COLA this year in military and federal civilian retired pay, veterans disability compensation and Social Security because of the weak national economy, congressional economists are estimating that the pay adjustment this Dec. 1, which will take effect in January paychecks, will be just 0.1 percent.

That forecast was issued March 12 by the nonpartisan Congressional Budget Office in relation to a bill that would increase veterans disability and survivor benefits.

While Social Security and military and civilian retired pay are automatically adjusted each Dec. 1 based on the change in the Consumer Price Index, a Labor Department measure of the cost of goods and services, increases in veterans benefits require a change in law. Legislation pending in the House and Senate would give veterans the same increase, if there is one, that goes to Social Security recipients.

Steve Strobridge of the Military Officers Association of America said the 0.1 percent COLA forecast could easily change, noting that earlier this year, congressional analysts were predicting no increase in the Consumer Price Index for three years.

“We just have to see what happens,” he said.

No COLA was approved for this year after the formula for determining the federal adjustment revealed that consumer prices had dropped by about 2 percent between the third quarter of 2008 and the third quarter of 2009. Inflation during the third quarter of each calendar year is the basis for the annual COLA.

In instances when consumer goods and services actually fall — which has not happened for more than three decades prior to last year — federal law includes a provision that prevents benefits from dropping in this situation. Instead, there is simply no increase.

“You cannot really say that a 1/10th of a percentage point increase is better than nothing because when it comes to COLAs, it is what it is,” Strobridge said. “You could argue that having no change in your retired pay at a time when prices had fallen was better than getting a small increase that matches the CPI. It is all in your perspective.”