Almost every year, federal retirees (CSRS/CSRS Offset and FERS annuitants) receive a cost-of-living adjustment (COLA). The amount of a COLA depends on whether the retiree is a CSRS/CSRS Offset annuitant or a FERS annuitant.
In the first of two columns discussing the 2024 COLA, this column discusses the 2024 COLA for CSRS/CSRS Offset annuitants and survivor annuitants. The second column in this series will discuss the 2024 COLA for FERS annuitants and FERS survivor annuitants.
SEE ALSO: 2025 CSRS COLA Watch
What is the CSRS/CSRS Offset COLA and How is the COLA Calculated?
In order to explain the CSRS/CSRS Offset COLA, it is important to define certain terms and their definitions:
• Base quarter. The calendar quarter ending September 30 (July 1 – September 30)
• Consumer Price Index for Urban Wage Earners (CPI-U). The index published monthly by the Department of Labor reflects changes in consumer prices for urban wage earners.
• Base Quarter Price Index. The arithmetical mean of the CPI-U for the three months comprising a base quarter (July, August and September).
• Cost-of-Living Adjustment (COLA). An increase to a CSRS annuity based on the increase in the CPI-U between two consecutive base quarters.
• Effective date. COLAs are effective on December 1 of the year preceding the year when an annuity becomes effective. CSRS annuity Increases resulting from a COLA are first implemented in annuity checks payable in January following the effective date.
• Annuity commencing date. The date an annuity first begins to accrue.
The 2024 COLA for CSRS and CSRS Offset annuitants is 3.2 percent with an effective date of December 1, 2023. The 3.2 percent increase was calculated by the Department of Labor (Bureau of Labor Statistics) based on the 3.2 percent increase of the 2022 base quarter price index to the 2023 base quarter price index.
Effect of 2024 COLA on CSRS and CSRS Offset Annuities
The amount of a CSRS annuitant’s 2024 monthly annuity, or a CSRS Offset annuitant’s 2024 monthly CSRS annuity is calculated by the 2023 gross monthly annuity (paid each month on the first of the month starting January 1, 2023, and ending December 1, 2023) by the 3.2 percent COLA factor.
The following examples illustrate:
Example 1. Paul, age 66, is a CSRS annuitant. Paul retired from federal service in 2015. His 2023 CSRS annuity was $72,000 per year, or $6,000 per month. Since Paul was a CSRS annuitant throughout 2023, Paul’s 2024 CSRS monthly annuity will be equal to $6,000 times 1.032, or $6,192.
Example 2. Charlene, age 68, is a CSRS Offset annuitant. Charlene retired from federal service in 2012 at age 57. The amount of her “offset” (the Social Security offset) was determined to be $14,000 per year or $1,167 per month. Note that a CSRS Offset annuity “offset” amount never increases or decreases, even COLAs. Once determined, the “offset” amount remains the same even with the monthly CSRS annuity portion increasing by a COLA.
Charlene’s 2023 CSRS Offset annuity was equal to: $65,600 (CSRS annuity) less $14,000 (offset) = $51,600. Her 2023 CSRS Offset monthly annuity is equal to ($65,600/12) less ($14,000/12) equals $4,300.
Charlene’s 2024 CSRS Offset annuity reflecting the 2024 COLA of 3.2 percent) equals:
($65,600 x 1.032) less $14,000 = $67,699 less $14,000 = $53,699. Her 2024 CSRS Offset monthly annuity is equal to ($67,699/12) less ($14,000/12) equals $4,474.
Note the following:
(1) The CSRS gross monthly annuity is the annuity payable after adjustments are made, when applicable, for all of the following items:
• Reduction for giving a CSRS survivor annuity benefit.
• Reduction for early (pre-age 55) retirement.
• Reduction for unpaid deposit service performed before October 1, 1992, and
• Reduction for unpaid redeposit for service ended prior to March 1, 1991.
(2) The gross monthly CSRS annuity is always rounded to the next lower dollar. However, the gross monthly CSRS annuity after a COLA must reflect an increase of at least $1.00. The following example illustrates:
Example 3. COLA equals 3.2 percent
Gross monthly CSRS annuity before COLA equals: $3,748
Multiply by COLA factor (1+.032) x 1.032
Gross monthly CSRS annuity after COLA $3,867
(rounded to the next lower dollar)
Proration of the First Year COLA
A CSRS or a CSRS Offset employee is eligible for his or her first COLA the January 1st following the year he or she retires from federal service. It makes no difference at what age a CSRS or a CSRS Offset employee retires. However, the amount of the first year COLA is prorated. The proration is based on the number of months from the annuity commence date to the effective date of the first COLA after the commencement date: Note the following: (1) CSRS and CSRS Offset annuitants receive 1/12 of the applicable COLA for each month, not to exceed 12 months, that they are in receipt of a monthly annuity before December 1st; and (2) In order Io receive the full December 1st COLA, a CSRS or CSRS Offset employee’s commencement date for retirement can be no later than December 31 of the previous year.
The following procedure is used to calculate the prorated first year COLA:
From the table below:
1. Determine the number of months on the CSRS annuity role (counted from the annuity commencing date) at the time of the COLA.
2. Divide the COLA rate by 12.
3. Multiply the answer by the number of months on the CSRS annuity role.
4. Round the answer to the nearest 1/10 of one percent.
The result is the prorated first year COLA:
(COLA rate/12) times (number of months on the CSRS annuity role) = Prorated first year COLA
The following two example illustrate:
Example 4. Carlos, a CSRS employee, retired from federal service on December 2,2023 with an effective retirement date of December 3, 2023. Carlos’ CSRS monthly annuity starting date is therefore December 3, 2023. Carlos will not receive any portion of the 2024 COLA of 3.2 percent, but Carlos will be eligible for the full December 2024 COLA increase that will show up in Carlos’ January 2025 CSRS monthly annuity check.
Example 5. Kathleen, a CSRS employee, retired from federal service on July 29,2023 with an effective retirement date of August 1, 2023. Kathleen’s CSRS monthly annuity starting date is therefore August 1, 2023. Kathleen will receive the following prorated portion of the 2024 COLA of 3.2 percent:
Annuity starting date: August 1, 2023
Number of months on CSRS annuity role (see table): 4.
2023 CSRS gross monthly annuity before 2024 COLA: $4,200
4/12 x 3.2 percent = 1.1 percent (prorated 2024 COLA)
Gross monthly CSRS annuity starting January 1,2024 after prorated 2024 COLA:
$4,200 x (1+.011) = $4,246
Note that the proration applies only to a CSRS or CSRS Offset annuitant’s first year COLA. Starting in the second year, a CSRS and a CSRS Offset annuitant receives the full COLA.
Survivor Annuities and COLAs
A CSRS survivor annuity payable to a CSRS annuitant’s designated survivor normally commences on the day after the death of the annuitant. The designated survivor includes a spouse, former spouse, or an insurable interest. A CSRS survivor annuitant receives the same amount of COLA as a CSRS annuitant receives with the same effective date each year of December 1st.
The following rules apply to the first year COLA:
• If a CSRS annuitant had received his or her first COLA, then the first year CSRS survivor annuity COLA is not subject to proration, no matter what month of the year the CSRS annuitant died.
• If the CSRS annuitant died before receiving his or her first COLA, then the CSRS survivor annuitant’s first COLA will be prorated based on the commencing date of the CSRS employee’s CSRS annuity, and
• The proration rules also apply to the first COLA paid to the survivor of a CSRS or a CSRS Offset employee who died while in federal service.
The following are two examples that illustrate the rules listed above:
Note while a CSRS or CSRS Offset annuitant is alive, the potential survivor annuity receives the same COLA increases the annuitant receives.
Children Survivor Annuities
Children’s survivor annuities are increased by COLA’s effective December 1st and are payable in the January annuity check. However, unlike the CSRS annuity and the CSRS survivor annuity, a children survivor annuity is not subject to proration.
Like a regular or a survivor CSRS annuity, a COLA is applied to a children survivor annuity before any deductions (for example, FEHB program insurance premiums) are made.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019