The final numbers are in for the January 2026 Cost-of-Living Adjustments (COLAs) for federal retirees, and they reflect the cooling inflation trend seen over the past year. As announced by the Social Security Administration and reported by FEDweek, retirees under the Civil Service Retirement System (CSRS) will receive a 2.8 percent COLA, while those under the Federal Employees Retirement System (FERS) will receive a 2.0 percent COLA.
Understanding the COLA Difference
Why the different percentages? It boils down to the formulas:
- CSRS: CSRS retirees receive a COLA equal to the full percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the prior year to the third quarter of the current year.
- FERS: FERS COLAs are typically lower. If the CPI-W increase is 2 percent or less, FERS retirees get the full amount. If it’s between 2 and 3 percent, they receive 2 percent. If the CPI-W is 3 percent or higher, the FERS COLA is the CPI-W increase minus 1 percentage point. Since this year’s CPI-W increase was 2.8 percent, the FERS COLA is capped at 2.0 percent. (It’s important to remember FERS retirees also receive Social Security benefits, which get the full 2.8% COLA).
These adjustments stand in contrast to the higher COLAs seen recently (like the historic 8.7% for CSRS in 2023 and 3.2% in 2024), driven by peak inflation. The current 2.8% CPI-W reflects the general easing of price pressures, though costs for essentials like housing and healthcare remain elevated according to recent Bureau of Labor Statistics (BLS) data. 📈
Why COLAs Alone Aren’t Enough
While COLAs provide crucial inflation protection for your pension, relying solely on them to maintain your purchasing power throughout retirement is a risky strategy.
- FERS Cap: The cap on FERS COLAs means your pension often won’t fully keep pace with inflation, especially during high-inflation periods.
- Real-World Expenses: COLAs are based on a general inflation index that may not reflect your personal spending, particularly rising healthcare costs, which often outpace general inflation. A 2025 estimate from Fidelity calculated that a 65-year-old couple might need $330,000 saved just for healthcare in retirement.
- TSP is Key: Your Thrift Savings Plan (TSP) becomes vital for generating growth to supplement your pension and Social Security, helping you stay ahead of rising costs over a potentially long retirement.
Building an Inflation-Resistant Retirement Plan
The 2026 COLA figures are a clear reminder that proactive, comprehensive retirement planning is essential. Understanding how your pension, Social Security, and TSP work together – and how inflation affects each piece – is critical for long-term financial security.
This is where the specialized expertise of Internal Benefit Advisors becomes invaluable. They are dedicated to educating federal employees on the intricacies of their unique benefits, helping them build retirement income strategies designed to withstand the pressures of inflation. 💰
Here’s how Internal Benefit Advisors can help:
- COLA Impact Analysis: They help you understand exactly how the COLA applies to your specific pension (CSRS or FERS) and integrate it into your overall income projections.
- Strategic TSP Management: They provide guidance on TSP allocation and withdrawal strategies aimed at generating the growth needed to outpace inflation and supplement your COLA-adjusted income streams.
- Healthcare Cost Planning: They help you anticipate and budget for rising healthcare costs in retirement, ensuring your FEHB and Medicare choices align with your financial plan.
- Empowerment Through Education: Knowledge is the best defense against financial uncertainty. Internal Benefit Advisors provides the clear, unbiased education needed to make confident decisions about your retirement income, investments, and long-term security.
Don’t let inflation silently erode your retirement dreams. Plan proactively.
Take the definitive step to ensure your retirement income keeps pace with your life. Contact Internal Benefit Advisors today for a consultation and build the secure future your service has earned.
References
- FEDweek. “January Retirement COLAs Set: 2.8 Percent for CSRS, 2 Percent for FERS.”
- Social Security Administration. (2025). Cost-of-Living Adjustment (COLA) Information for 2026.
- U.S. Bureau of Labor Statistics. (2025). Consumer Price Index Summary.
- Fidelity Investments. (2025). Retiree Health Care Cost Estimate.
- Internal Benefit Advisors. Retrieved from https://internalbenefitadvisors.com
