There are several differences between COLA and Pay Rise in the United States. These differences are important if we want to have the biggest check each month. It doesn’t matter if you collect Social Security retirement or work for the state, any increase in your benefit is always welcome. So, COLA and Pay Rise are not the same, but they are very similar. You can’t buy both at the same time, but you can get benefits from one of them.
Many people have wondered during this year what the difference is between COLA and Pay Rise because federal employees received a 3.1% pay increase. This increase was in January of this same year. After that, we saw the Social Security retirement benefit rise by 1’6%, half of the increase in federal workers’ pay.
So, if you have questions about what the differences are between COLA and Pay Rise, here you can learn about them to see if your Social Security will have an increase in the future or not. Both impact retirement sooner or later, so it’s good to know everything in detail.
COLA: cost-of-living adjustments
The COLA (Cost of Living Adjustments) is an annual increase that retirees receive. Everyone with a Social Security retirement benefit receives this increase every year. The increase depends on price inflation and some other factors. The name of the index that is in charge of adjusting this is CPI-W.
Because of this CPI-W, the COLA increase is higher or lower. This index is used to calculate the average change in the prices customers pay for a wide range of goods and services over time. It also increases at the same time as the price of ordinary products and services.
Over the past year, for example, it increased by 1.6%, which means that CSRS and FERS pensions received a 1.6% increase (COLA). But not every year it’s that easy. While CSRS pensions grow at the rate of the index, FERS pensions do not when inflation exceeds 2 percent. FERS pensions, for example, will only increase 2 percent if the index rises between 2 and 3 percent.
FERS pensions will grow 1pc less than the index if the index rises more than 3pc. For example, if the index rises by 5pc, FERS benefits will only increase by 4pc. Retirees must have received their pensions for a full year in order to receive the full COLA. If this is not the case, the increase will be prorated depending on the number of months you have received benefits. It is important to know that the COLA does not increase for FERS Social Security retirees until they reach age 62.
Pay Rise in Federal Salaries
Every year, the President proposes a pay increase to Congress. Congress may or may not approve it, depending on many factors. This increase applies only to active employees. Therefore, this increase does not result in Social Security retirees getting more money in their monthly check.
Therefore, this increase affects only active federal workers. With these annual increases, the United States Government intends to prove that working for them is enough in terms of purchasing power. It is very important to know that every year you can receive a salary increase if you work for the Government. That is the main difference betwen this and COLA.
This annual increase makes your Social Security retirement, after all the years worked, higher. Remember that the retirement benefit depends on the 35 years with the highest salary, so the more salary you can earn, the better your final retirement check will be.