COLA's pension - capped or not capped

[Chuckanut]

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?

 

[Mulligan]

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.

 

[truenorth418]

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.

 

[RE2Boys]

COLA'd pension here. Same formula as SS COLA.

 

[Sue J]

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%.

 

[braumeister]

Military pensions have the same COLA as SS, meaning no cap.
There are quite a few of us here.

 

[doxiemama]

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!

 

[Chuckanut]

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.

 

[Kaufmanrider]

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.

 

[chilkoot]

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.)

 

[utrecht]

Mine is a 4% fixed COLA. 4% the first year and then that same dollar amount (not same percentage) every year afterwards. No cap

 

[JakeBrake]

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.

 

[martyb]

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.

 

[heirloom]

No cola here, just a flat pension. You all will have to take care of me in later years

 

[OAG]

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.

 

[ronin]

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.

 

[martyb]

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.

 

[braumeister]

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.

 

[Shawn]

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.

 

[braumeister]

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.

 

[martyp]

Mine is a COLA'd pension. The COLA % is based on the cost of living indexes for the San Francisco Bay Area and the Los Angeles Area. I haven't heard of any cap.

 

[RAE]

Military pensions have the same COLA as SS, meaning no cap.
There are quite a few of us here.

Right, no cap on military/CSRS fed pensions, but the COLA has been pretty pathetic in recent years. I retired in 2010, and here are the annual COLA's since then:

January 2010 -- 0.0%
January 2011 -- 0.0%
January 2012 -- 3.6%
January 2013 -- 1.7%

And the last I heard, the COLA in Jan. 14 is on track to be around 1.3% or so.

Sure, it's still better than not getting a COLA, but it ain't much. I realize that could change in the future........

 

[akck]

My pension has a COLA that is 50% of the CPI for the first 5 years then the % is increased to 75% of the CPI. There is also a cap of 9% on the COLA. Also, at age 65, we get 10% more if we remain in the state.

 

[ccourt9283]

My pension will increase at 1/2 of the the CPI. It doesn't apply if I leave before 62, so 3 1/2 more years.

 

[Walt34]

Mine is COLA'd, no cap, tied to the CPI of MD, DC, WV, PA, DE, and VA, states surrounding the Washington, DC area. It used to be just the Washington, DC area but they expanded it to get the increases down a bit.

Since it is tied to the CPI, it can go down, and in 2009 it did by 0.05%. I haven't heard of any others that do that. On the flip side it is 100% of the CPI for those areas. I feel very, very lucky to have that.