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COLA's pension - capped or not capped
Old 08-16-2013, 03:46 PM   #1
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COLA's pension - capped or not capped

The thread "What's a pension worth?" got me thinking. The present value of a pension depends a lot upon whether or not it has a cap (among other things, of course) I am curious.

If you have a pension with a COLA, is there a cap on the COLA?

Or, perhaps, a flat rate COLA adjustment of x% a year regardless of what the inflation rate is?
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Old 08-16-2013, 04:03 PM   #2
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I will play with you Chuck. Mine is a fixed annual 2% cola, with a maximum lifetime cap of 80% above my initial draw. So I will cap out at around 2040. So I will be capped out at about age 76 if I am still alive. Even little colas like 2% add up. My first 2 colas have brought my pension up from around $72k to 75k. No SS, oh wait I will get about $105 a month in today's dollars at 62. WEP knocked it down from over $400.
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Old 08-16-2013, 04:54 PM   #3
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I have a modest pension awaiting me in the future. I could tap it at 55, but it will pay more annually if I take it later. It maxes out at 65.

Sadly, it is not COLA'd.
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Old 08-16-2013, 05:02 PM   #4
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COLA'd pension here. Same formula as SS COLA.
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Old 08-16-2013, 05:11 PM   #5
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DH's pension has a 3% fixed COLA. It's 3% of the first year, not compounded, so the increase is the same every year. There is no lifetime cap.

His pension plan just made changes that don't apply to current retirees. Within 5 years the COLA changes to one tied to an economic index, not to exceed 3%.

I really appreciate that he retired before the changes and his COLA will stay at 3%.
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Old 08-16-2013, 05:16 PM   #6
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Military pensions have the same COLA as SS, meaning no cap.
There are quite a few of us here.
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Old 08-16-2013, 06:31 PM   #7
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Mine will have a 3% COLA tied to CPI. Most years the people have received 3% from my agency. I have not started collecting yet. I am 52 and plan to retire at 55. I know the COLA will be huge in surviving retirement without going broke. Think of a 3% COLA times 10 years = 30% higher benefit, more because it is based on the total amount each year but you know what I mean.

At my agency we have not been getting COL raises for the past 6 years. So people are retiring to earn more and get a COL increase!
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Old 08-16-2013, 07:02 PM   #8
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Quote:
Originally Posted by doxiemama View Post

At my agency we have not been getting COL raises for the past 6 years. So people are retiring to earn more and get a COL increase!
Yup! My last few years were first, no raise, then a de-facto pay cut when they reduced certain paid days teachers were given to get ready for the school year, then a 2% pay cut on top of the cut in days. Had I been retired I would have actually received a slight increase due to the low rate of inflation. Of course, my pension is still a small percentage of what I was earning when I worked.

FWIW, my solid gold platinum plated brass and pine pension has a COLA that is capped.
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Old 08-16-2013, 07:05 PM   #9
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Here is how my Federal COLA is calculated.

For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar.

I guess something is better than nothing.
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Old 08-16-2013, 07:14 PM   #10
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I collect a pension. No COLA, so I just have to hope that's offset by the fact that my expenses are way low (no mortgage. No car payment.)
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Old 08-16-2013, 07:16 PM   #11
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Mine is a 4% fixed COLA. 4% the first year and then that same dollar amount (not same percentage) every year afterwards. No cap
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Old 08-16-2013, 08:23 PM   #12
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I took the lump sum option. No COLA. However, If I drop dead tonight, DW will get the full lump sum. Until then, it's between me and Vanguard. In about 30 years I'll let y'all know how it turned out.
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Old 08-16-2013, 09:47 PM   #13
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2 pensions, one federal CSRS that will begin this January (retiring end of December). The other one is a military reserves retirement that will begin in January of 2018, when I reach my 60th birthday. Both are COLA'd the same as Social Security. Due to WEP, I'll only see around $200 or so from SS per month, which I'll take at age 62.
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Old 08-16-2013, 11:19 PM   #14
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No cola here, just a flat pension. You all will have to take care of me in later years
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Old 08-17-2013, 11:27 AM   #15
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Quote:
Originally Posted by braumeister View Post
Military pensions have the same COLA as SS, meaning no cap.
There are quite a few of us here.
Hopefully we will not take a triple hit (SS, Military & VA disability) from the Chained CPI.
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Old 08-17-2013, 11:57 AM   #16
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Flat 2% of initial benefit COLA plus a purchasing power protection clause which makes a quarterly payment to keep purchasing power equal to 85% of initial year's benefit (PPP is not constitutionally guaranteed). I estimate this might be triggered around yr. 14.
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Old 08-17-2013, 11:58 AM   #17
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Hopefully we will not take a triple hit (SS, Military & VA disability) from the Chained CPI.
I'm hopeful, but not so optimistic about that situation. In my case, both my CSRS and my military retirements would be affected.
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Old 08-17-2013, 03:49 PM   #18
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Quote:
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Hopefully we will not take a triple hit (SS, Military & VA disability) from the Chained CPI.
I fully expect that to happen, sooner rather than later.

Definitely worth fighting against.
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Old 08-17-2013, 04:37 PM   #19
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My future pension is based on the University of California Retirement Plan. There is a COLA, but it is a partial COLA. Recipients receive the full COLA for CPI's (CPI-U) between 0-2%. There is no additional COLA increase for CPI's between 2-4%. There is an additional COLA increase of 0.75xCPI for CPI's above 4%, up to a maximum additional increase of 4%. So the maximum COLA is 6%, which is reached when the CPI is 9.3% or higher. There is no reduction if the CPI drops.

Based on historical inflation data, the pension loses an average of about 1.5% of it's real value to inflation every year. This means that it loses about half of it's real value in 50 years. However, a long period of very high inflation could devastate the pension (e.g., 20 years of 20% inflation). I am considering ways to hedge against this unlikely but possible outcome with my investment portfolio.

In mental calculations of retirement income, I consider future SS payments as income that will supplement the loss of real pension income due to inflation. I will come out ahead if SS remains similar to what it is today. I will come out behind if my future SS is significantly reduced or eliminated. But overall I consider it a wash, so I do not factor in the decreasing real value of my pension when mentally estimating future retirement income.
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Old 08-17-2013, 04:47 PM   #20
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Just as a side note, when I do my projections of future income and spending, I have always assumed that my expenses will increase by the CPI inflation percentage, while my COLA income (pension and SS) will increase only by one percent less than CPI.

I just don't believe that current COLA rates will continue forever, as the current "chained CPI" discussions make clear.
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