What is a COLA?
A cost-of-living adjustment (COLA) is an annual increase to your federal annuity designed to preserve purchasing power as consumer prices rise. COLAs are effective December 1 each year and first appear in your January payment. They are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), measured over the July–September period.
The FERS diet COLA explained
Unlike CSRS — which pays the full CPI-W — FERS uses a reduced formula sometimes called the “diet COLA”:
- CPI-W ≤ 2%: FERS receives the full CPI-W (no reduction).
- 2% < CPI-W < 3%: FERS receives a flat 2%, regardless of the actual CPI-W.
- CPI-W ≥ 3%: FERS receives CPI-W minus one percentage point (e.g., 3.5% CPI-W → 2.5% FERS COLA).
Over a 20–30 year retirement, the compounding effect of receiving a smaller COLA year after year creates a significant gap between what your annuity pays and what it would buy at the same standard of living as when you retired.
Why FERS retirees wait until 62
FERS regular retirees receive no COLA at all until January 1 of the year they turn 62. An employee who retires at 57 under MRA+30 will go 5 years with a flat nominal annuity while consumer prices rise — a double erosion problem: no COLA and then a reduced COLA thereafter.
Three groups are exempt from this rule: FERS disability retirees, survivor annuitants, and special-provision retirees (law enforcement officers, firefighters, and air traffic controllers). These groups receive the diet COLA from the beginning of retirement.
2026 COLA
The 2026 COLA (effective December 2025, paid January 2026) was 2.8% for CSRS retirees and Social Security recipients. FERS retirees received 2.0% — the diet COLA cap applies when CPI-W falls in the 2–3% band.
How inflation erodes a FERS annuity over time
Use the projection tool above to model your specific situation. At a sustained 2.5% CPI-W, a FERS regular retiree receives 2.0% per year while everything else costs 2.5% more. After 25 years, the FERS annuity has lost roughly 13% of its real purchasing power relative to a CSRS annuity started at the same amount. At 3.5% CPI-W, the FERS retiree receives 2.5% per year — still trailing by one percentage point, compounding every year. The gap shown in the chart is your projected annual shortfall relative to full-CPI protection.