For the last twenty years, federal employees and retirees have experienced annual income adjustments through two distinct mechanisms: cost-of-living adjustments (COLAs) and federal pay increases. While both aim to align wages with economic trends, they’re calculated, applied, and impact different groups in various ways.
This article looks into the historical patterns of COLAs and federal pay increases over the past two decades, emphasizing their similarities and differences while providing context for their evolution and effects on federal compensation.
Federal Salary Increases and COLAs (2006-2026)
Below is a year-by-year summary of federal wage increases alongside Social Security COLAs for the last 20 years.
Even though these figures signify annual pay increases for federal employees and retirees, they stem from different processes and pertain to separate groups. The historical perspective demonstrates how these measures have responded to inflation and economic conditions differently, offering insights into their influence on federal compensation.
After this table, we’ll delve into the crucial differences between COLAs and federal pay raises and the specifics regarding the anticipated adjustment for 2026.
| Year | Federal Salary Increase (%) | Social Security COLA (%) | Notes |
|---|---|---|---|
| 2006 | 3.1 | 4.1 | COLA higher than salary increase |
| 2007 | 2.2 | 3.3 | Both increases modest |
| 2008 | 3.5 | 2.3 | Salary increase exceeded COLA |
| 2009 | 3.9 | 5.8 | COLAs soared with inflation |
| 2010 | 2.0 | 0.0 | COLA frozen, pay moderate |
| 2011 | 0.0 (freeze) | 0.0 | Both frozen |
| 2012 | 0.0 (freeze) | 3.6 | Retirees benefited, federal salaries frozen |
| 2013 | 0.0 (freeze) | 1.7 | Salary freeze continued |
| 2014 | 1.0 | 1.5 | Both modest increases |
| 2015 | 1.0 | 1.7 | Similar trends |
| 2016 | 1.6 | 0.0 | COLA frozen, pay moderately increased |
| 2017 | 2.1 | 0.3 | Pay higher |
| 2018 | 1.9 | 2.0 | Nearly equal |
| 2019 | 1.9 | 2.8 | High COLA |
| 2020 | 3.1 | 1.6 | Pay proportionately higher |
| 2021 | 1.0 | 1.3 | Both increases small |
| 2022 | 2.7 | 5.9 | COLA about twice as much |
| 2023 | 4.6 | 8.7 | COLAs surge alongside inflation |
| 2024 | 5.2 | 3.2 | Pay is higher |
| 2025 | 2.0 | 2.5 | COLA increases |
| 2026 | 1.0* | 2.8 | Potential COLA delays |
Key Differences Between COLA and Federal Salary Increases
Having this background helps clarify the critical differences between COLAs and federal pay raises, which is why their figures don’t always align.
Many federal employees and retirees mistakenly equate COLAs with annual pay increases. While both adjust income levels, the calculations for COLAs are rather complex. In essence, COLAs are designed to maintain purchasing power for retirees in response to inflation, whereas federal pay raises focus on increasing the salaries of current employees and are often influenced by political factors. Recognizing these distinctions is vital for understanding year-to-year changes in compensation.
What is the 2026 COLA?
The 2026 COLA is set to be 2.8%, which applies to retired federal employees and Social Security recipients but not to current federal employees. It’s intended to counteract inflation and maintain retirees’ purchasing power.
This adjustment will take effect in December and will be reflected in pension payments starting January 2026.
How is the COLA Calculated for 2026?
The COLA is calculated automatically based on the Consumer Price Index for Urban Wage and Office Workers (CPI-W). Essentially, we compare the average CPI-W for the third quarter of the previous year with that of the current year.
In 2026, the calculation will use the average CPI-W for the third quarter of 2024 as a baseline and compare it to the average CPI-W for the third quarter of 2025. The increment is rounded to the nearest tenth to determine the COLA.
| CPI-W Targets: | ||
|---|---|---|
| 2024 | 2025 | |
| July | 308.501 | 316.349 |
| August | 308.640 | 317.306 |
| September | 309.046 | 318.139 |
| 3rd Quarter Total | 926.187 | 951.794 |
| Average (rounded to the nearest 0.001) | 308.729 | 317.265 |
The COLA percentage is determined as follows:
(317.265 – 308.729) / 308.729 x 100 = 2.8%
Which Federal Retirees Receive a COLA?
Not all federal retirees receive the same COLA amount.
Civil Service Retirement System (CSRS)
CSRS retirees get the full COLA (before any deductions) applied to their monthly benefits, rounded down to the nearest dollar.
Federal Employees Retirement System (FERS)
FERS retirees receive a COLA that matches the CPI increase if that increase is 2% or less. If the CPI increase is between 2% and 3%, the COLA is capped at 2%. If the CPI increase exceeds 3%, the COLA is 1% less than the CPI rise, with amounts rounded down to the nearest dollar.
To receive the full COLA, a retiree must have been receiving a pension for at least a year; otherwise, the COLA is prorated.
FERS and FERS Special COLAs do not build until the retiree reaches age 62, except in cases of disability, survivor benefits, or other special considerations.
What About Federal Pay Raises?
Unlike COLAs, annual federal pay increases are specific to current federal employees and are influenced by the political landscape. Typically, the president proposes such a raise, which Congress can then approve, modify, or deny.
The federal pay increase for 2026 remains undecided, but it appears that employees might see a 1% raise based on the pay plan suggested by the president. Under the alternative pay plan, most employees would receive a standard 1% raise, while some in law enforcement could see a 3.8% raise to align with military pay hikes in 2026.
Final decisions regarding the pay increase are anticipated later this month, and updates will be shared as they become available.
Who Benefits More?
With both COLAs and federal pay increases influencing compensation, there’s natural curiosity about who gains more: retirees or current federal employees. The answer isn’t straightforward, as each adjustment serves distinct purposes and follows different processes.
Because the calculations and applications differ, the advantages for retirees and current employees can fluctuate greatly year by year. In some instances, retirees might see a significant COLA increase due to high inflation, while in other years, it could be a more pronounced increase for employees stemming from legislative actions.
Ultimately, both COLAs and pay increases fulfill essential but separate roles in ensuring equitable and competitive compensation for federal employees and retirees.
