Retiree COLA doesn't keep pace with medical inflation

Friday - 7/1/2011, 12:29pm EDT

Arthur Stein, SPC certified financial planner

Click to hear the interview.

Download mp3

By Jolie Lee
Federal News Radio

A slowly improving economy could mean a heavier wallet for retirees. Federal retirees could get as much as a 3.5 percent raise in their cost of living allowances this year - even more if prices continue to go up.

The 3.5 percent COLA applies to CSRS retirees and a 2.5 percent to FERS retirees, said certified financial planner Arthur Stein.

FERS also get a full COLA for their social security benefit, but because of the slightly lagging annuity COLA, FERS retirees' annuity is "constantly behind inflation by a little bit each year," Stein said.

Federal News Radio's Mike Causey wrote in a column last month, "The amount of the COLA won't be known and official until mid-October when the Consumer Price Index-W for the third quarter of this year (July, August, September) is announced."

The problem for retirees is even receiving the full amount of the COLA does not keep pace with medical costs.

Services like long-term care and medical costs "tend to go up faster than the overall inflation rate, and seniors tend to be more dependent on (these) services than younger people," Stein said.

Inflation is key for retirees' long-term planning as many people retire in their sixties - or sometimes in their fifties - and could potentially be retired for two or three decades, Stein said.

For FERS employees, the social security benefits helps "even things out." But, Stein added, "They're not fully compensated for inflation is the end result."

Stein's advice for the COLA: "Try to save as much of it as you can."

"If you do need to spend it, make sure you spend it on things that are necessary and important," he said.

And another thing to keep in mind: "There's the possibility that Congress will fool with the cost of living adjustment."