Over the past two decades, federal employees and retirees have seen their incomes adjusted annually through two related but distinct mechanisms: the Cost of Living Adjustment (COLA) and the federal pay raise. While both represent increases in pay designed to keep pace with economic conditions, they differ significantly in their calculation, application, and the groups they affect. 

This article explores the historical trends of both the COLA and federal pay raises over the last 20 years, highlighting their similarities and differences, and providing context for understanding how these adjustments have evolved and impacted federal compensation.

Federal Pay Raise vs. COLA (2006–2026)

The following table presents a year-by-year comparison of the federal pay raise and the Social Security Cost of Living Adjustment (COLA) over the past 20 years.

While these two figures represent annual increases in compensation for federal employees and retirees, they are derived through different processes and apply to different groups. This historical overview highlights how the two measures have tracked inflation and economic conditions differently, providing valuable context for understanding their impact on federal compensation.

Following the table, the article further explores the key differences between the COLA and federal pay raises, as well as the specifics of the 2026 adjustments.

Important Differences Between the COLA and Federal Pay Raise

With this historical context in mind, it is essential to understand the fundamental differences between the COLA and the federal pay raise, which explain why these figures sometimes diverge.

It is common for federal employees and retirees to confuse the Cost of Living Adjustment (COLA) with the annual federal pay raise, as both represent increases in income. Additionally, the COLA computation is quite complex as explained below. However, these two adjustments are fundamentally different in their purpose, calculation, and application. 

The COLA is designed primarily to help retirees maintain their purchasing power by adjusting benefits based on inflation, while the federal pay raise is intended to increase the salaries of current federal employees and is influenced by political and budgetary decisions unlike the COLA. Understanding these differences is crucial for federal workers and retirees to grasp how their compensation changes each year and what factors drive those changes.

What is the 2026 COLA?

The 2026 COLA will be 2.8%. This adjustment applies to retired federal employees and Social Security recipients, but not to current federal employees. The COLA is designed to help offset inflation and maintain purchasing power for retirees.

It went into effect in December and will appear in federal retirees’ annuity payments beginning in January 2026.

How is the 2026 COLA Calculated?

The COLA is calculated automatically based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, it compares the average CPI-W for the third quarter of the previous year to the third quarter of the current year.

For 2026, the calculation uses the average CPI-W from the third quarter of 2024 as the base and compares it to the average CPI-W from the third quarter of 2025. The increase, rounded to the nearest tenth of a percent, determines the COLA.

Which Federal Retirees Receive the COLA?

Not all federal retirees receive the same COLA amount.

Civil Service Retirement System (CSRS)

CSRS retirees receive the full COLA applied to their monthly benefit before deductions, rounded down to the next whole dollar.

Federal Employees Retirement System (FERS) 

For retirees under FERS, if the CPI increase is 2% or less, the COLA equals the CPI increase. If the CPI increase is between 2% and 3%, the COLA is capped at 2%. If the CPI increase exceeds 3%, the COLA is 1% less than the CPI increase. The amount is rounded down to the next whole dollar. 

The table below illustrates this.

To receive the full COLA, retirees must have been receiving annuity payments for a full year. Otherwise, the COLA is prorated.

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