Military retirement pay is based on a percentage of the base pay you received prior to retiring from active duty, National Guard or reserve military service. One of the benefits that makes military retirement pay so valuable is the built-in annual Cost of Living Adjustment (COLA).
COLA is pegged to the Consumer Price Index (CPI), which is a Bureau of Labor Statistics formula that tracks inflation for the cost of certain consumer goods.
The final measurement determines the Cost of Living Adjustment for federal pension plans (including military retirement pay, FERS and CSRS pensions), as well as COLA increases for Social Security Benefits, VA Disability Compensation and other government benefits programs.
In short, COLA is there to help your military retirement pay maintain its purchasing power over time.
Related: Did you know that your military service may increase your Social Security Benefits?
2023 Annual Military Retirement Pay Increase
The cost of living adjustment for 2023 will be 8.7% for Social Security checks, VA disability compensation and other government pension and benefit programs.
COLA raises for Social Security benefits and certain other benefits are automatic. However, each year Congress must pass a bill to implement COLA raises for veteran benefits, including disability and dependent compensation, clothing allowances and dependency and indemnity compensation.
Military retirement pay COLA increases take effect in your January 2023 payment.
How Much Is the Annual Military Retirement Pay COLA Raise?
The COLA amount varies each year, based on the federal measurements for the Consumer Price Index.
Here are the past 13 years of military retirement COLA pay raises:
|Year||Annual Social Security COLA Increase|
As you can see from this table, 2010, 2011 and 2016 had no annual COLA increase because inflation remained low at the time. Remember, COLA’s purpose is to maintain the spending power of your retirement check, so COLA rates are higher in years with higher inflation.
Which Retirees Receive This COLA Increase?
If you retired under the military’s Final Pay or High-3 retirement plans, you should receive the full COLA increase, as long as you have been retired for longer than one year. If you retire in 2023, you may not receive a full COLA increase, because DFAS applies COLA on a sliding scale for service members who retire during the calendar year.
DFAS typically publishes a schedule for retirees who retired in the previous year.
Here is a previous example for military members who retired in 2013 (2014 had a 1.5% COLA increase). You can use these as a reference point.
Recent military retirees receive COLA based on the quarter in which they retired. For example, those who retired between January 1, 2013, and September 30, 2013, received a full or partial COLA, as follows:
- January through March retirees received the full 1.5% COLA for 2014.
- April through June retirees received 0.9%.
- July through September retirees received 0.4%.
- October through December retirees received no COLA in 2014.
The reduced payment is a one-time deal, and only affects retirees during their retirement year. Retirees will receive the full COLA increase in subsequent years of retirement.
REDUX COLA Adjustments Will Be Smaller
If you signed up for the $30,000 career status bonus at your 15-year mark and agreed to retire under the REDUX retirement plan, you will receive a smaller cost of living adjustment each year. REDUX retirement recipients receive a COLA that is 1% less than CPI. For the 2023 COLA, REDUX retirees would only see a 7.7% COLA increase.
One-Time Catch-Up Adjustment for REDUX Retirees.
There is a one-time adjustment at age 62 that brings REDUX retirees’ pay up to the level it would have been at age 62 without the decreased COLA rate. However, after this increase, decreased annual COLA rates resume.
More Info on CPI and Threats to CPI-Based COLA
How is CPI Determined
The measurement the government uses is called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), but you will often hear it simply referred to as CPI.
The Bureau of Labor Statistics determines CPI by measuring price increases for consumer goods, such as food and beverages, housing, clothing, transportation, medical care, recreation, education, communication and more.
Threats to CPI and Military Retirement COLA
The government has examined several methods of decreasing the annual COLA pay increases for military retirees and other government benefits recipients.
- Chained CPI. Chained CPI is a measurement that reduces the overall CPI used today. The theory is that as the cost of some goods increase, people replace them with lower-cost goods. An example would be, as the price of steak increases, people eat less steak and more chicken. Or, as the cost of gasoline increases, people will carpool, drive less frequently or take public transportation. There are flaws in these assumptions, but that is the gist of it.
- Congress decreased military retirement Pay – then restored it. In early 2014, Congress agreed to decrease the annual Cost of Living Adjustment similar to the REDUX option. Under the plan, retirees would received an annual COLA of (CPI – 1%), up to the age of 62. At age 62, they would receive a one-time adjustment to bring their compensation back to the level it would have been under the full COLA method we have now. However, Congress later reverted military retirement pay calculations to the method in use now.