Retirement & Disability Rates Should Increase for 2018. But By How Much?

You should see a larger retired or VA disability increase than last year thanks to the all the hurricanes. But what do hurricanes have to do with COLA? Here's the connection.

Military Retired Pay and COLA

Most government payments see a Cost of Living Allowance (COLA) every year. The COLA makes sure that your payments keep up with inflation. These payments include:

• Military retirement


• Civil service retirement


• Social security


• VA disability compensation



 
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The COLA is based on another government measurement, the Consumer Price Index (CPI).

The CPI

The CPI is based on what is known as a "market basket" of goods that all households purchase. Every month, the good folks at the Department of Labor measure the price of about 80,000 items at various locations nationwide. This month's prices are compared to last month's prices, averaged together and voila, the CPI is created.

Hurricanes?

Well, along with salad dressing, scotch, Subarus and slippers, the price of gasoline is included in this monthly measurement. If you've been paying attention, you know that after Hurricane Harvey hit Texas the price of gasoline shot up by about 15 percent at the pump. According to the government, gasoline makes up about 4 percent of the average household's monthly spending. Since most people spent more per gallon for gasoline in September than they did in August the CPI will probably increase for that time period.

How Does All This Affect Your Payments?

Each year, the government takes the CPI average for the third quarter (July to September) and compares it to the same period for previous year. If prices increase then the COLA will match that increase.

Last year there was a 0.3 percent increase in retired pay based on this formula, largely because the price of gasoline went down during the third quarter. In 2015, there was no increase in retired pay at all due to big drops in gasoline prices back then.

How Much Will The Increase Be?

The experts are saying that this year's COLA may be much better than previous years. As of August, the CPI was 1.9 percent higher than last year. The effects of Hurricanes Harvey and Irma driving up gasoline and food prices may further drive up the CPI.

The result? Some experts estimate that the COLA may be 1.8 - 2.3 percent. Of course, we won't know until the government makes their official announcement on October 13.

An increase sounds good, right?  Well don't spend it all at once, a 1.8 percent COLA on a $2,000 monthly check would be $36, while a 2.3 percent increase would be $46. You can easily calculate your military pay -- and your future pay once the rates are released -- with the handy Military.com pay app.

That's just about enough to fill your tank with gas.