As a CalPERS retiree, you may be wondering when you’ll receive an annual cost-of-living adjustment (COLA). If you have questions about it, read on.
Retirees typically receive an annual COLA paid on the May 1 benefit payment. The law says retirees receive their first COLA in their second calendar year of retirement. That means if you retired in 2020, you will get your first COLA in May 2022. If you retired last year — 2021 — you won’t see your first COLA until May 2023.
Your COLA Percentage
COLAs are limited to a maximum of 2%, compounded annually, for all school retirees and First-Tier State of California retirees. (Second Tier State of California retirees receive a fixed 3% COLA.)
Public agencies can contract with CalPERS for maximum cost-of-living adjustments of 2%, 3%, 4%, or 5%. If you’re a public agency retiree and don’t know your COLA, contact your former employer.
Inflation and the Consumer Price Index
The law requires CalPERS to calculate annual inflation figures for COLAs by using the All Urban Consumer Price Index (CPI), U.S. City Average, 1967 Base Year. CalPERS uses the CPI at the time of retirement to calculate what your value of money should be when we adjust for COLA.
Your COLA allowance can equal but not exceed the rate of inflation using the U.S. City Average. The law also limits your annual adjustment to the rate of inflation or the COLA based on your agency’s contract with CalPERS — whichever is lower.
Calculating Your COLA
The process for calculating your cost-of-living adjustment is more complex than simply multiplying your retirement allowance by your COLA adjustment (2%, for example). In fact, a compounded percentage is applied against a figure known as your base allowance. Generally, that’s the gross amount you received at the time of your retirement.
The result is that mathematically you will get a higher adjustment over time than by simply multiplying your COLA by your gross allowance.
CalPERS determines your COLA percentage by comparing the actual rate of inflation (based on the U.S. City Average) to your 2%, 3%, 4%, or 5% adjustment. It compounds each number, then keeps a running total each year.
CalPERS makes a yearly comparison between your COLA percentage adjustment and inflation, compounding each number and applying the lesser of the two figures against a set base.
Learn More
For more information about the COLA calculation, visit our COLA webpage.
You’ll also find information about the Purchasing Power Protection Allowance (PPPA), which protects against inflation for those whose benefits fall below minimum levels established by law.
If you have further questions about your COLA, please send us a message through myCalPERS or call us at 888 CalPERS (or 888-225-7377).
Related Posts
I'm an expert in retirement benefits and financial planning, specializing in public pension systems like CalPERS. With years of experience and a comprehensive understanding of the intricacies involved, I can confidently provide insights into the topics discussed in the provided article.
The information presented in the article revolves around the Cost-of-Living Adjustment (COLA) for CalPERS retirees. As a retiree, it's crucial to be well-informed about when and how these adjustments are determined to manage financial expectations effectively.
Let's break down the key concepts discussed in the article:
-
Timing of COLA Payments: Retirees typically receive an annual COLA paid on the May 1 benefit payment. The law mandates that retirees receive their first COLA in their second calendar year of retirement. For example, if someone retired in 2020, the first COLA would be received in May 2022.
-
COLA Percentage Limits: COLAs are capped at a maximum of 2%, compounded annually, for all school retirees and First-Tier State of California retirees. Second-Tier State of California retirees receive a fixed 3% COLA. Public agencies can negotiate with CalPERS for maximum cost-of-living adjustments of 2%, 3%, 4%, or 5%.
-
Inflation and the Consumer Price Index (CPI): The law mandates CalPERS to calculate annual inflation figures for COLAs using the All Urban Consumer Price Index (CPI), U.S. City Average, 1967 Base Year. The COLA allowance cannot exceed the rate of inflation using the U.S. City Average, and the annual adjustment is limited by either the rate of inflation or the COLA specified in the agency's contract with CalPERS, whichever is lower.
-
Calculating Your COLA: The process involves a compounded percentage applied against a figure known as the base allowance, which is the gross amount received at the time of retirement. The result is a higher adjustment over time compared to a simple multiplication of COLA by the gross allowance.
-
Comparison and Adjustment: CalPERS determines the COLA percentage by comparing the actual rate of inflation to the specified adjustment (2%, 3%, 4%, or 5%). It compounds these numbers, makes a yearly comparison, and applies the lesser of the two figures against a set base.
-
Additional Information: The article mentions the Purchasing Power Protection Allowance (PPPA), which safeguards against inflation for beneficiaries whose benefits fall below minimum levels established by law.
For individuals seeking more detailed information or clarification, the article encourages a visit to the CalPERS COLA webpage. Additionally, retirees can inquire about their COLA through myCalPERS or by contacting CalPERS directly at 888-225-7377.
In summary, the provided information serves as a comprehensive guide for CalPERS retirees, covering the timing, limits, calculation methods, and additional safeguards associated with the annual Cost-of-Living Adjustment.
