Inflation-driven projections for the annual cost-of-living adjustment (COLA) for uniformed services retirement pay, along with Social Security and VA disability benefits, point to one of the largest increases in decades.

Estimates vary, but one analyst’s recent 4.7% COLA prediction would mean the fourth-largest increase since the early 1990s, trailing COVID-inflated figures from the early 2020s and the 5.8% increase in 2009.

It’s well above the 3.1% average increase over the last decade, according to CNBC, which highlighted the year-over-year hikes in fuel oil and gasoline as key drivers of the current figures.

Timing Matters

The projection came after the June release of May inflation data, including the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is used to set the COLA. Tracking this index gives an idea of where the final rate may end up, and the trends will soon translate into the actual adjustment.

[TRACK THE FIGURES: MOAA’s COLA Watch]

Only the final three CPI-W data points of the fiscal year – July, August, and September figures – are used in the COLA calculation. The average CPI-W from those months is compared with the average from the same months last year to determine the increase. Get the full details on the math at MOAA’s COLA Watch page.

While tracking these figures and projections can be helpful in preparing for future finances, it’s critical to remember that the trends can shift before the COLA is set:

• The 2022 COLA came in at 5.9% after tracking below 1% for the first four months of FY 2021.
• The 2023 COLA tracked at 9% entering the summer of 2022, but inflation cooled slightly, leading to an 8.7% increase.
• The 2024 COLA landed at 3.2% after tracking below 3% until August of FY 2023.

Higher COLA, Higher Risk

MOAA tracks COLA figures not just for financial planning purposes, but to ensure service-earned benefits (like retirement pay and VA disability benefits) retain their value. Without these inflation-based increases, the purchasing power of this earned compensation would drop sharply over time.

Threats to these benefits are far from theoretical – from “COLA Minus 1 Percent” in the mid-2010s to fighting off a COLA repeal for military retirees in the 1980s, MOAA has made securing this adjustment a key part of its advocacy work for decades. And while no pending legislation would target the benefit, ever-present language in a regular Congressional Budget Office report on deficit-reduction options would re-index the adjustment and possibly weaken the benefit for retirees and other COLA recipients by billions of dollars a year.

Higher COLA projections make the adjustment a more tempting target for lawmakers, but MOAA will continue its work to ensure the full value of uniformed services retirement is preserved.

Keep up with the latest on this issue at our COLA Watch page and at MOAA.org/news.