3 Ways COLAS Can Affect Federal Disability Retirement

If you are a disabled federal employee who has received Federal Disability Retirement, you may be wondering if Cost-of-Living Adjustments (COLAs) will affect your annuity. COLAs are periodic adjustments made to retirement and other benefit plans to help offset the effects of inflation on fixed incomes. 

As a disabled retiree, it’s important to understand how COLAs work and whether they apply to your situation. In this article, we’ll explore the ins and outs of COLAs for federal retirees and provide helpful information for those receiving disability retirement benefits.

What are COLAS?

So, what exactly is COLA? A COLA, or Cost-of-Living Adjustment, is a pay increase that compensates for inflation. This means that your retirement income will be adjusted to account for any increases in the cost of living.

COLAs are important because they help retirees maintain their standard of living as prices rise. Without COLAs, retirees would see their purchasing power decrease over time. To determine the amount of the adjustment each year, the federal government uses a formula based on inflation data and other economic factors.

It’s also worth noting that not all government employees receive COLAs. Those who participate in certain retirement plans may not be eligible for adjustments. Additionally, some plans may offer different types of cost-of-living increases or none.

How Are COLAS Computed?

COLAs are computed annually and consider changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over the previous year.

To calculate an employee’s COLA, first, their current monthly benefit amount is determined based on their length of service and the highest average pay rate during their career. This amount is then multiplied by the percentage increase or decrease in CPI-W since the last adjustment. 

Note: If there was no change in CPI-W, then there would be no COLA adjustment that year.

How COLAS Affect Federal Disability Retirement 

Individuals who receive federal disability retirement benefits are eligible for COLAs after the first year of benefit. Just like with regular federal retirees, COLAs help to ensure that the income received by those on disability retirement keeps up with inflation over time. These adjustments typically happen annually and are based on changes in the Consumer Price Index (CPI).

Here’s how COLAS might affect your Federal Disability Retirement:

• #1. The amount of COLA you receive may depend on how long you have been receiving disability benefits. If you have been receiving benefits for less than one year, your COLA will be prorated based on the number of months you received benefits. 

• #2. COLAs can affect the amount of money a person receives in their monthly disability check. For example, if someone is receiving $1,000 per month in disability benefits and there is a 2% COLA increase, they will now receive $1,020 per month. While this may seem like a positive development, it is important to note that any payment increases could result in reductions or loss of other benefits such as Social Security Disability Insurance (SSDI).

• #3. COLAs can impact eligibility for certain programs such as Medicaid or Supplemental Nutrition Assistance Program (SNAP). For instance, if an individual receives federal disability retirement, their COLA could potentially put them over the income threshold for Medicaid or SNAP eligibility. This is because these programs have strict eligibility requirements that consider both income and assets.

What About FERS?

Another important factor to consider is the potential impact of receiving disability payments through the Federal Employees Retirement System (FERS) before reaching age 62. The good news is that if you do receive disability annuity payments before turning 62, your average salary will be increased by all cost-of-living adjustments paid during this time.

This means that even though you may have been out of work due to a disability and receiving lower payments than your regular salary, your future retirement benefits may increase thanks to these additional cost-of-living adjustments. 

It’s important to note that this increase only applies if you receive disability payments at some point before turning 62; those who retire normally without any periods of disability will not see any similar benefit.

Prepare for Retirement

Preparing for retirement is a crucial step in securing your financial future. With Federal Educators, you can access valuable resources that cater to various stages of federal retirement planning. 

By taking a proactive approach to retirement planning, you can enjoy your golden years with peace of mind. Contact us today at (813) 755-7037 to see how we can assist you in planning for your future.