This article by Molly Weisner, with contributions by Leo Shane III, originally appeared on Military Times, the nation's largest independent newsroom dedicated to covering the military and veteran community.

After the largest cost-of-living adjustment in four decades in 2023, the increase in annuities for retired government workers, military retirees and veterans is projected to be much lower next year — and that’s good news, according to financial advisers.

Under a measure signed into law by President Joe Biden on June 14, military retirees and veterans will see a cost-of-living boost equal to the raise Social Security recipients will receive. The two sets of benefits have been linked for decades, but federal rules still mandate that Congress pass the mirror legislation each year.

[RELATED: MOAA’s COLA Watch]

In a statement, Senate Veterans’ Affairs Committee Chairman Jon Tester, D-Mont., said pairing veterans’ benefits increases with other federal payouts will protect family finances “at a time when folks are struggling with rising costs, from housing to groceries.”

But those costs aren’t rising as fast as they were just a year ago.

The baseline COLA for next year is estimated to be 2.7%, according to the Senior Citizens League, a nonpartisan advocacy group that seeks to educate Americans on retirement issues. In 2023, the COLA boost surged to 8.7%, giving federal and military retirees and veterans the highest inflation increase in their benefits since the early 1980s. Now, inflation rates are slowly leveling out after reaching a four-decade high in 2022, and in response, the COLA — which is based on inflation figures from July through September — is projected to be much more modest.

“Having a low COLA is actually a good thing,” said Dallen Haws, a financial planner for Haws Federal Advisers, in an interview with sister publication Federal Times. “It means inflation is relatively low. The moment it starts getting higher, it lags more.”

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For federal employees, COLAs apply differently depending on the government retirement plan in which they are enrolled. The Federal Employee Retirement System includes those who entered the civil service beginning in 1984, and the Civil Service Retirement System applies to those working for Uncle Sam before that date.

For military retirees and veterans, and those collecting Social Security and annuities under the CSRS, the COLA is equal to the Consumer Price Index for Clerical Workers — the average change in prices of consumer goods over time. These adjustments, while a helpful buffer against economic instability, were never intended to fully make up for losses in value of their retirement checks, Haws and others said. COLAs are a reactive adjustment to inflation, meaning that by the time retirees sees them in their benefit checks, their money — in reality — is already behind.

“The challenge for people is that we haven’t truly seen a reduction in costs and the thing that people spend most of their money on,” said Thiago Glieger, a private wealth expert for Maryland-based RMG Advisors. “If you look at what grocery bills are, from what they were a year ago, it’s arguably still really, really high.”

The CPI-W increased 3.6% in the last 12 months — the lowest increase since March 2021, according to the Bureau of Labor Statistics.

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To illustrate that, consider that as of January, the inflation rate of the CPI-W was actually lower than the 2023 COLA, so that difference could mean a retiree with average benefits of $1,694 could get a $52 monthly increase in their buying power, the Senior Citizens League said.

On the other hand, that difference may be hardly noticeable since inflation took such a large chunk out of value in the last two years. The average Social Security benefit fell behind by $1,054.

Thrift Savings Plan

For those not ready to retire, experts urged prioritizing a savings account, like the Thrift Savings Plans, to create a stable source of income in times of volatility.

So how can feds and military members save effectively?

“Sometimes people get a little scared because the markets can be volatile and maybe they don’t invest as aggressively as they should,” Glieger said.

In other instances, as experts have seen in the past few months, the I Fund of the TSP has been outperforming the other investments. Glieger said he has seen hundreds of millions of dollars invested into the I Fund as news of its good returns spread.

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However, he warned against chasing trends and instead urged federal employees and troops to have a well-informed plan that is more proactive than reactive. Otherwise, they may only take advantage of a hot rate when it’s about to cool off.

Remember, too, that the 2.7% COLA is just an estimate. The actual COLA for 2024 will be determined by how much the CPI-W changed in the third quarter of this year compared with last year. The final number will be announced in October and becomes effective on Dec. 1. Adjustments appear in January checks. 

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