The COLA Trap

[@elyseb674]

Happy New Year from 🇧🇭! A colleague told me about the COLA trap, last week. I'm a second career, terminal CDR. I have an 18 month window from when I can retire (AUG26) and HAVE to retire (FEB28) at 62. It's only 7 months extra to get to MAR27. We'll see how things go in my twilight tour if I can extend the marathon a little longer. GREAT info and graphics on ALL your videos.

[@the_bureaucrat]

I would be curious to hear how it turns out. You are in an interesting situation because you can start claiming Social Security shortly after retirement. I wonder if there is anything special about your experience that I don't know about.

[@elyseb674]

​@the_bureaucrat I commissioned at 40.5, I don't plan on working FT again after I retire. My "O5 paycheck of the month" will be my "fixed" income. My zillions in TSP, 401k, IRA, and eventual SS will be my play money. Depends on if I'm happy that I'll stay till March 2027. Happy New Year!

[@aneagonzalez05]

Darn Chuck, this info would have been nice to have a year ago. Great video. Hope all is well.

[@the_bureaucrat]

If you retired in 2021, you actually made out very well. I think people started getting burnt in 2022.

[@ChristopherGarvin-d6e]

Great breakdown. I hit the retirement roles on March 30th, not the 31st or April 1st due to unique circumstances. If I understand correctly, this would still keep me in in the Jan, Feb, March quarter? Thanks for all of your videos!

[@the_bureaucrat]

@ChristopherGarvin-d6e, I'm betting that you are a disability retirement or some other separation that doesn't "Always start on the last day". With the date give, you would be in the JAN-MAR quarter.

[@joeys5552]

I am wondering how this trap works more than after the first year? I have been told that the next January 1st every retiree gets the same COLA adjustment %.? The one time adjustment only matters your first year correct? I’m looking at Dec 1st over retirement March 1st as it would be 9 more months of service giving you 1.89% more on your retirement %. Please shed some light on this to make more sense of it.

[@the_bureaucrat]

At the end of the day, you have to do what feels right to you...thousands of folks retire every year without stressing over this point. [TRUE] After the first year, every retiree gets the same COLA adjustment. [TRUE] The one time adjustment only applies your first year. BUT...someone who retires March 1st will get a partial COLA adjustment. Someone who retires December 1st will not. If the partial COLA adjustment is greater than 1.89%, then in the new year the March 1st guy will receive a bigger pension than the December 1st guy. The REAL reason to work those 9 extra months is to boost your High 36 Months base pay. There are a couple places in the pay chart where the Base Pay growth is the real driver of pension growth. If you would like to continue this conversation, reach out to me at www.linkedin.com/in/charles-weko. KZbin does a poor job of managing conversations that go beyond a one time comment and reply. These two other videos might help: kzbin.info/www/bejne/jqjYpaWllq51odU and kzbin.info/www/bejne/aqeniWyhpK2chMk

[@AndraBatco]

Not sure what to do. I'm 26 years 8 mo active duty but at >28 yrs of service for pay (due to starting at >2, not 26 and >28 are the same for pay for O6, so I don't move up for pay for 4 years straight and I'm almost 3 years into that now (June 1st 2025 I'll go to >30 for pay purposes but be at 27yrs 10mo of service). I'm having analysis paralysis for when to retire. 2025, 2026, or 2027, and then what month. That pay bump in June 2025 would be my last one after 4 years stagnant, with 2 yrs 2 months of possibly duty left before the mandatory 30-year retirement. Based on watching many of your videos it sounds like I should retire right now/June 2024 (because my pay was stagnant for the last 3 years except for COL, and I have one more year of same pay before the next yrs of service bump), or I should retire March 1st 2027 to maximize (because of the last pay bump for service to >30 that I'll get June 1 2025 and get 2 yrs of higher pay). I'd be 57 years old then. Hmmmm.

[@the_bureaucrat]

If you want to hit me up at chuck dot weko at gmail dot com, I have tools to analyze this situation. One of the personal pieces for you will be have to do with your age. And if you want to get a jump on things, fill out this questionaire. drive.google.com/file/d/1VWjf-Op37Ov20cZp5CCibHLkTByb0CX8/view?usp=drive_link

[@jmb4884]

Wouldn't June 1st be the more advantageous than March 1st due to the additional months and still receiving COLA?

[@the_bureaucrat]

I did a better job of discussing that point in this video: kzbin.info/www/bejne/fV7Wlp9-iJKfhM0. As you point out, March 1 is not the "is all, be all" of perfect times to retire. In fact, when you take a long enough view, it seems to be a crap shoot that is completely out of the retirees hands. So June 1? It is just as good as March and what really matters is how it fits in your family life.

[@RoyatAvalonFarms]

Chuck, do you happen to know if or how this affects Reserve Retirement? Specifically, does it matter when you retire out of service, or when you apply to begin drawing the pension? Not by any plan of my own, i retired out on March 1, 2022 (My MRD). Because of qualifying active duty, i "should" be able to draw my pension roughly 4 years early from my 60th birthday, so just over 1 year from now. I still need to get an official determination on which orders will count or not. So that might be as early as Oct to Dec 2025. Is there some advantage for me to put off receiving pension payments until March of the next year, if i even have a choice? Or is all of this determined based on my past retirement date? Or maybe totally different because of Reserve Retirement? Thanks.

[@the_bureaucrat]

Roy, the Reserve Retirement puts yet one more complicating twist on this, but the bottom line is "Don't Worry Too Much". First, in the video at this link (kzbin.info/www/bejne/fV7Wlp9-iJKfhM0) I address the question of whether a Regular Pension guy should "worry" about the COLA trap. My conclusion is that worry isn't worth it. There is too much out of your control and too little difference to make this a top priority. Second, you've probably seen my video on calculating reserve pensions (kzbin.info/www/bejne/bp2rk4NnerB0fbs)...the key factor here is that a reserve pension is based on the pay table values at the time they retire. So increases in AD pay act as "cost of living increases" for reservists between when they stop drilling and start drawing a pension. The point being that those can be better increases than just COLA. Oh...and finally, be diligent about your Active Duty time when calculating early retirement. Reservists can combine short AD orders into 90 day chunks, but it sticks in my head that AD orders under 90 days don't get a DD214, so lots of qualifying time might have to be documented using orders and LES. Finally, you seem to be a gentleman with his head firmly screwed on. If you want to continue the conversation, shoot me a note at [e-mail]. KZbin comments are great for getting started, but terrible for in depth discussions. Chuck

[@RoyatAvalonFarms]

@@the_bureaucrat thank you so much. That is a very detailed response with way more fidelity than anyone else could have ever provided. Yes I am familiar with the points system and generally with how AD time affects early retirement, although I will have to review several of my short orders periods without DD214s to determine if they were the right classification to count toward early retirement. I think I'm currently IN that window of time to contact HRC and start getting determinations without being so late as to losing out on time. Your info on this channel is by far THE most informative and worthy information on retirement issues of any source I've ever seen. Thank you so much. I'll be following up with an email.

[@alwaysbelieve4175]

Hi and thanks one time partial cola adjustment the same no matter when you retire in the month, but to your advantage to retire later in quarter??? I had planned to retire 1 january, but now understand i should retire at minimum a month earlier, 1 december. Would it be to my benefit to retire even earlier, 1 march or 1 june?

[@the_bureaucrat]

The partial COLA adjustment rate is the same no matter when in the quarter you retire. So JAN, FEB, MAR...all the same percentage adjustment. APR, MAY, JUN...all the same. By retiring later in the quarter you get the advantage of time plus the same partial COLA. Historically, the rate for the JAN, FEB, MAR quarter has been higher than it "should" be so retiring on 1MAR is generally viewed as the best timing.

[@BrianKetz-pq1wo]

If I want to maximum my benefits surrounding the COLA trap. I would want to retire in the month of March. Saying that I would request that I be released from active duty and assignment on 28 February 2024 and placed on the retired list on 1 March 2024. Check or Hold?

[@the_bureaucrat]

You are exactly correct. I am personally entering the retired rolls on 1MAR23.

[@BrianKetz-pq1wo]

@@the_bureaucrat me too..just finishing the paper work up now.. thanks brian.

[@jamesarmstrong7527]

How much of a loss are talking about and over what kind of time frame? A few hundred each year?

[@the_bureaucrat]

It's not going to ruin you financially. Fowler's paper suggests that you lose thousands over your life. But this is a good question and I might do a video to answer this exact question.

[@gregraney6458]

Does this apply to federal gvt retirement as well?

[@the_bureaucrat]

I don't know...Let me look into it and get back to you.

[@the_bureaucrat]

Greg, the FERS retirement system doesn't have this weird partial COLA calculation (they prorate the annual COLA the way most people would expect). But...there is something important about COLA when it comes to FERS. If you retire before age 62, you don't get COLA adjustments until you reach age 62. That can really penalize early retirement.

[@RodneyThomas]

Well this sucks. Retiring 3rd quarter. No way around it. Might as well get a divorce now and start life over.

[@the_bureaucrat]

Don’t let it eat you up. Thousands of folks happily retire in 3rd quarter without even knowing the difference. Besides, it’s like Shrek says: “better out than in”.

[@RodneyThomas]

@@the_bureaucrat oh I’m not. Is the shortage lifetime or just for that initial couple of checks?

[@the_bureaucrat]

@@RodneyThomas Unfortunately, it accumulates over your lifetime. You never "catch up".

[@RodneyThomas]

@@the_bureaucrat that's horrible. Guess I'll have to run for political office in retirement and change the formula. 😀

[@the_bureaucrat]

@@RodneyThomas Good luck. If you are serious about running for office, I can put you in touch with some folks.