2012 Cost of Living Allowance Increase Bill Passed

According to the Bureau of Labor Statistics the Consumer Price Index for April 2011 was up 0.8 percent over the March CPI. This is important for military retirees, and those drawing VA benefits, because the CPI is used to determine the annual cost-of-living-adjustment (COLA) and rate adjustments to VA Disability and Compensation, Vets Pension programs, and other VA rates for the following year. The Military Officers Association of America reports that the April 2011 CPI is up 2.9 percent from the 2008 CPI, which means veterans and survivors may see a cost of living allowance increase as well as an increase in compensation and pension benefits in 2012, the first since 2008.

This is important for military retirees, and those drawing VA benefits, because the CPI is the indicator used to determine the annual cost-of-living-adjustment (COLA) and adjustments to VA Disability and Compensation,Vets Pension, and other VA rates for the following year.

According to the Military Officers Association of America (MOAA) the April 2011 CPI is up 2.9% from the 2008 CPI. The 2008 CPI will be used to calculate the 2012 COLA since there has been no COLA since 2009.  This means that if the trend continues the COLA for 2012 could be quite substantial. This will also mean an increase in VA Compensation and Pension programs as well as social security rates.

COLA Explained

Each year Military Retirement pay, VA Compensation and Pensions, and Social Security benefits are adjusted for the rate of inflation. This annual Cost of Living Adjustment is determined by the Consumer Price Index for the previous year. In a normal cycle the CPI for a given year is compared to the previous year to determine the actual rate of inflation. However, since 2008 was the last year the rate of inflation was positive, it is the baseline for determining the 2012 rate of inflation.

For example, the 2012 COLA will be based on the 2011 rate of inflation. The 2011 rate of inflation was up 3.6% when compared to 2008, therefore there will be no COLA for Fiscal Year 2011.

Note: Retiree Cost of Living Adjustment (COLA) differs from the Active Duty Cost of Living Allowance which is paid based on the cost of living in a given high-cost locality. This number will be released in late December.

More on Retiree COLA  from DFAS:

Cost-of-Living Increases: Perhaps the most common change to retiree pay accounts are the Cost-of-Living (COLA) increases. Currently, federal law authorizes periodic increases to reflect rises in the Consumer Price Index (CPI). COLA increases impact your monthly gross pay, federal withholding tax, SBP premiums and annuities. While DFAS does not establish COLA increases, the agency does apply any authorized increases to your pay, SBP premiums and other account information.

COLA is applied depending on your date of entry into the armed forces and your date of retirement. If you entered service on or after Sept. 8, 1980, and became eligible for retired pay on or after Jan. 1, 1996, any authorized COLA will be decreased during your first calendar year of retirement. Full COLA increases will be applied for all subsequent years. Retirees who entered military service on or after Aug. 1, 1986 and opted in for the Career Status Bonus (CSB/Redux retirement plan), will have any authorized COLA increases reduced by 1 percent.

2012 COLA Watch Update

Congress passed a bill to set the 2012 COLA rate at 3.6%. This will mean an increase in military retirement pay, VA rates for compensation and pension for disabled veterans and surviving families, and social security recipients beginning in 2012.

resource: Military.com