Cola 2025 Federal Employees - What Is The 2025 Cola Update Here?

What Is The Cola 2025 Federal Employees?

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For Now, the 2025 cola update is that The Social Security Administration (SSA) has announced a 2.5% cost-of-living adjustment (COLA) for 2025, which will impact more than 72.5 million Americans, including Social Security beneficiaries and Supplemental Security Income (SSI) recipients.

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Starting in January 2025, nearly 68 million Social Security beneficiaries will see this increase in their monthly benefits, while approximately 7.5 million SSI recipients will receive their adjusted payments beginning on December 31, 2024. This adjustment is calculated based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2023 to the third quarter of 2024.

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However, cola 2025 federal employees covered by the Federal Employees Retirement System (FERS), typically hired in 1984 or later, will receive only a 2% COLA for 2025. Meanwhile, Civil Service Retirement System (CSRS) retirees and Social Security beneficiaries will receive the full 2.5% adjustment.

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This discrepancy is due to a rule in the current law that determines the COLA for FERS retirees based on the CPI-W but at a reduced rate in specific situations.

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If the CPI is 2% or less, FERS retirees receive the same COLA as CSRS and Social Security beneficiaries. However, if the CPI is between 2.01% and 3%, as it is for 2025, FERS retirees receive a fixed 2% COLA, regardless of the actual increase. If the CPI exceeds 3%, FERS retirees receive 1% less than CSRS retirees and Social Security recipients. Note- please keep checking the 2025 cola update it can be announced at any time in January.

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The difference in COLA amounts results in compounded losses for FERS retirees. For example, a FERS retiree will lose $128 throughout 2025 alone, assuming the average pension amount, and those who retired four years ago with the same average pension would have lost over $1,000 due to these cumulative cuts.

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This reduction in the FERS COLA has sparked criticism from groups like the American Federation of Government Employees (AFGE). AFGE supports the Equal COLA Act, introduced by Sen. Alex Padilla (S. 3194) and Rep. Gerry Connolly (H.R. 866), which aims to provide FERS retirees with the same cost-of-living adjustments as CSRS retirees and Social Security beneficiaries. This legislation would also eliminate the arbitrary COLA reduction for FERS retirees in years of high inflation, helping protect their purchasing power.

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As AFGE Legislative Director Julie Tippens explains, “Our nation’s public servants shouldn’t see their hard-earned retirement benefits eroded by a COLA set at the start to arbitrarily lower the real inflation rate.”

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Also read- Guide to 2025 GS Pay Scale for Federal Employees

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2025 Federal Pay Raise With Locality

2025 Federal Pay Raise: The proposed 2% pay raise for General Schedule (GS) employees is also included in the 2025 federal budget released this week. If approved, this increase would take effect in the first full pay period of January 2025. Notably, a 2% pay raise would be the smallest adjustment federal employees have received in the last three years.

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2025 Federal Pay Raise of 2% Proposed in White House Budget - The White House has released an alternative pay plan for 2025, proposing an average pay raise of 2.0% for civilian federal employees. This includes a 1.7% across-the-board increase in base pay and an average 0.3% increase in locality pay adjustments.

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History of Automatic Cost-Of-Living Adjustments

Before 1975, Social Security benefits were only increased when Congress passed specific legislation. However, to help protect benefits against inflation, Congress established an automatic annual cost-of-living adjustment (COLA) system through the 1972 Social Security Amendments.

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Key Points in COLA History:

• 1975: The first automatic COLA was introduced, based on the annual increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
• 1975-1982: COLAs took effect with Social Security benefits payable for June, which beneficiaries received in July.
• 1983: There was no COLA as it was a transitional year.
• 1984 onwards: COLAs have been effective with benefits payable for December, received by beneficiaries in January.

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Automatic Cost-Of-Living Adjustments Received Since 2000

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How To Calculate Cola Increase?

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To calculate your COLA increase, you'll need to know the COLA percentage for the year and your current monthly Social Security benefit amount.

Here's the formula:

COLA Increase = (Current Monthly Benefit Amount * COLA Percentage) / 100

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Example:

If your current monthly benefit is $1,500 and the COLA for the year is 3%, your COLA increase would be:

COLA Increase = ($1,500 * 3) / 100 = $45

So, your new monthly benefit would be:

New Monthly Benefit = Current Monthly Benefit + COLA Increase = $1,500 + $45 = $1,545

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What is the Highest Social Security Payment At Age 67?

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The maximum Social Security benefit at age 67 depends on your earnings history over your career. While your specific benefit amount is based on your lifetime earnings and how much you paid into Social Security, the Social Security Administration (SSA) sets an annual cap on the maximum benefit a person can receive. This cap changes each year to reflect cost-of-living adjustments and inflation.

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To get a more accurate estimate of your potential maximum benefit, you can use the Social Security Administration's online calculator. You can find it on the SSA's website: ssa.gov

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What Are The Factors That Affect The Cola For 2025 Federal Employees?

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The primary factor affecting the COLA for 2025 federal employees is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the average change over time in the prices of goods and services typically purchased by urban wage earners and clerical workers.   

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Here's how it works:

• Inflation Measurement: The Bureau of Labor Statistics (BLS) tracks the CPI-W to measure inflation.
• COLA Calculation: The Office of Personnel Management (OPM) calculates the COLA based on the percentage increase in the CPI-W over the past year.
• COLA Announcement: The OPM announces the COLA for the following year, usually in October.

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