Military Retirement Pay COLA Explained

Military retirement pay COLA is a crucial aspect of a service member's benefits. It's a cost-of-living adjustment that helps keep pace with inflation.

The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the prices of everyday goods and services.

In 2022, the COLA was 5.8%, which is the largest increase in over 40 years. This significant boost was necessary to account for rising living costs.

The COLA is applied to the service member's basic pay, which is the amount they would have received if they were still active duty.

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COLA is a crucial concept for military retirees to understand. It's a way to protect their purchasing power from inflation.

The percentage of COLA is determined by the percentage increase in the Consumer Price Index between the current year and the prior year. This is based on the average 3rd quarter Consumer Price Index.

COLA increases must be presented as a bill and voted on by Congress. This ensures that any changes are carefully considered.

The announcement of any COLA changes is made each December, and payouts begin in January. This allows military retirees to plan ahead and adjust their budgets accordingly.

A COLA is only given if there is an increase in the Consumer Price Index. If there's no increase, there's no COLA.

If you retired under the Final Pay or High-3 plans and have been retired for 12 months or longer, you'll receive the full COLA increase.

Those who retired under these plans will get the full COLA increase, no questions asked.

Your retirement plan is a big factor in determining how COLA changes will impact your income, so make sure you know which plan you're on.

If you retired less than 12 months ago, your retirement could be affected by COLA, but don't worry, it's not a permanent reduction.

Retirees who retire during the calendar year will have their COLA applied on a sliding scale, which is available from the Defense Finance and Accounting Service.

After the first anniversary of your retirement, you'll receive a full COLA, so mark that date on your calendar.

For another approach, see: Retirement Plans

The annual Cost Of Living Adjustment (COLA) is calculated using the Consumer Price Index, which measures the cost of living and what it currently takes to purchase goods.

The percentage of COLA is determined by the percentage increase, if any, between the average 3rd quarter Consumer Price Index of the current year over the average 3rd quarter CPI of the prior year.

COLA increases are based on changes in the Consumer Price Index as measured by the Department of Labor, and the purpose is to ensure the purchasing power of retired military pay isn’t eroded over time by inflation and changes in consumer prices.

If there is an increase in the cost of goods and services, COLA goes up, and if there is no increase, there is no COLA adjustment.

Here's a breakdown of how COLA is tied to other benefits:

Staying informed is key to maximizing your benefits. Berry Law has helped over 10,000 Veterans with their disability benefits.

Navigating the complexities of military retirement COLA can feel daunting, but understanding the distinctions can help you plan your finances better.

Staying informed will help you receive the full benefits you deserve.

Inflation rises, wages fall. In 2022, we saw a COLA rate of 5.9%, the highest in recent years. The subsequent years have seen a decline, with 2023's rate at 8.7% and 2025's rate at 2.5%.

The implications of these adjustments are significant, as they affect the financial well-being of a substantial portion of the Veteran population. Since the 2009 great recession, COLA rates have often been considerably lower.

A notable example of this is the year 2011, when the COLA rate was 0.0%. This is not an isolated incident, as we can see from the table below, which shows the COLA rates from 2010 to 2025:

In 2023, disabled veterans will see a COLA increase, but the numbers aren't as impressive as for retirement pay. The 8.7% increase in pay means someone with a VA disability rating at 10% will see their checks increase by roughly $13 per month for a 10% disability rating.

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Military retirees with VA disability ratings face a choice when it comes to cost-of-living adjustments. They can only get one COLA, which is applied to either their disability pay or retirement monthly payment.

Retirement pay is taxable, while VA disability pay is not, making this decision a personal matter. Compare the numbers before making a choice.

Disabled veterans will see higher COLA payments in 2023, but the increases aren't as impressive as for retirement pay. An 8.7% increase in pay means a 10% disability rating will see checks increase by roughly $13 per month.

Those rated at 100% disabled will see a COLA increase of approximately $289 per month.

Military retirees under the REDUX plan may see smaller COLA increases, with their COLA set at the Consumer Price Index minus 1%. This means they'll receive a lower COLA than announced, such as 4.9% in 2022 instead of 5.9%.

Those who opted for the REDUX plan and received a $30,000 Career Status Bonus at 15 years of service will be affected by this rule. They'll receive a COLA that's less than the standard increase.

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One exception to this rule is if the COLA rate is 1 percent or less, in which case REDUX plan retirees will receive the same COLA as all other retirement plans.

REDUX retirees have a one-time pay adjustment at age 62 that brings their pay level up to what it would have been without the decreased COLA. However, after this adjustment, the annual COLA of CPI minus 1% resumes.

Military retirees who draw both VA disability compensation and retirement pay have a decision to make when it comes to cost-of-living adjustments. They can only receive one COLA, which is applied to either their disability pay or retirement monthly payment.

The COLA increase for military retirees and veterans is a significant one. It's 8.7% in 2023, the largest increase since 1981.

This increase is meant to offset inflation, and it's a welcome relief for those who rely on their military retirement pay or VA compensation for service-connected medical conditions. Some retirees may collect an additional $87 per each $1000 of retirement pay for a given month.

The COLA increase is a notable change from the last two years, with a 1.3% increase in 2021 and a 5.9% increase in 2022. This averages out to 1.9% over the last decade.

Here's a quick comparison of the last two years' COLA increases:

It's worth noting that not all retirees and veterans drawing disability pay will see the same increases. Those who opted into the CSB/REDUX program will have a smaller COLA increase, getting $77 per $1000 when the new COLA payments begin in 2023.