U.S. Military (Ret.): Officials should consider different index for COLA - Military Retirement, leaving the service - Military Times

U.S. Military (Ret.): Officials should consider different index for COLA

Amid a shaky economy and high jobless rates, military retirees are growing worried about the possibility of a second straight year with no cost-of-living adjustment in retired pay.

Calculating the annual retiree COLA is complicated, even under “normal” conditions — and the fact that retirees saw no adjustment this year for the first time in a generation complicates the situation further.

The COLA is a cumulative calculation based on a year-to-year comparison of the average inflation rate over the final quarter of each fiscal year, July through September. This comparison is done by the Bureau of Labor Statistics using what’s called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The reason there was no COLA increase this year is because the CPI-W did not increase from the final quarter of fiscal 2008 to the final quarter of fiscal 2009.

In such situations, the law says the starting point for calculating a possible 2011 COLA remains the last quarter of fiscal 2008.

The Military Officers Association of America notes that after the deflation of 2009, the July 2010 value of the CPI-W is still down 0.7 percent from the fiscal 2008 final-quarter index.

In other words, we’re still in a COLA “hole.” For retirees to see even a small adjustment in 2011, inflation would have to rise about 1 percentage point in both August and September, MOAA says — an unlikely prospect.

Regardless of what the overall inflation trends indicate, I know I’m not alone in noticing that living costs continue to increase, particularly health care costs.

Perhaps it’s time for a discussion about using a different index for calculating the retiree COLA, such as the Experimental Price Index for the Elderly.

The CPI-E is geared to people ages 62 and older, and studies have shown that because it measures a different mix of goods and services, it tends to slightly outpace both the CPI-W and the Consumer Price Index for All Urban Consumers.

Obviously, many military retirees are younger than 62. But maybe there’s an argument to be made that it’s worth basing the annual COLA on the CPI-E to help retirees who need it most — those no longer working and living on fixed incomes.

If inflation continues to run flat and the possibility of a second year of no COLA edges closer to reality, it will be interesting to see what happens over the next few months as lawmakers campaigning for re-election face hard questions from angry Social Security recipients and military retirees.

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Retired Command Master Chief Alex Keenan served 28 years in the Coast Guard. E-mail him at retired@atpco.com.