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.

YearFederal Pay Raise (%)Social Security COLA (%)Notes20063.14.1COLA outpaced pay20072.23.3Both modest20083.52.3Pay higher than COLA20093.95.8COLA surged with inflation20102.00.0COLA freeze, pay modest20110.0 (freeze)0.0Both frozen20120.0 (freeze)3.6Retirees gained, feds froze20130.0 (freeze)1.7Pay freeze continued20141.01.5Both modest20151.01.7Similar trajectory20161.60.0COLA freeze, pay modest20172.10.3Pay higher20181.92.0Nearly equal20191.92.8COLA higher20203.11.6Pay higher20211.01.3Both small20222.75.9COLA nearly double20234.68.7COLA surged with inflation20245.23.2Pay higher20252.02.5COLA modestly higher20261.0*2.8Raise likely lags COLA* Projected 2026 federal pay raise

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.

 CPI-W for—20242025July308.501316.349August308.640317.306September309.046318.139Third quarter total926.187951.794Average (rounded to the nearest 0.001)308.729317.265

The COLA percentage is calculated as:

(317.265 – 308.729) / 308.729 x 100 = 2.8%

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.

If the CPI is:Then the COLA is:<= 2%COLA = CPI increase> 2% and <= 3%COLA = 2%> 3%COLA = CPI – 1%

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

Additionally, FERS and FERS Special COLAs are not granted until age 62, except for disability, survivor benefits, and other special provisions.

What About the Federal Pay Raise?

Unlike the COLA, the annual federal pay raise applies only to current federal employees and is subject to political processes. The president typically proposes a pay raise, and Congress may approve, modify, or reject it.

The 2026 federal pay raise has not yet been finalized, but federal employees are projected to get a 1% pay raise based on President Trump’s annual pay plan letter issued in August. Under his alternative pay plan, most federal employees will receive a 1% across the board raise. However, federal employees in certain law enforcement positions are projected to get a 3.8% raise to be in line with the 2026 military pay raise.

The pay raise will be finalized later this month and FedSmith will provide the information as soon as it is available.

Who Benefits More?

Because both the COLA and the federal pay raise impact pay, it is natural to wonder which group—retirees or current federal employees—benefits more from these adjustments. The answer is not straightforward, as the two increases serve different purposes and are determined through distinct processes.

Because these adjustments are calculated and applied differently, the relative benefit to retirees versus current employees can vary widely from year to year. Some years may see larger COLAs due to high inflation, while others may feature more substantial pay raises driven by legislative decisions.

Ultimately, both play important but separate roles in maintaining fair and competitive compensation for federal workers and retirees.

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