YMM Reading List

Tuesday, November 2, 2010

No Cost of Living Increase in Retired Pay

Like social security, there will not be a cost of living increase for 2011 according to a report today in the Air Force Times Online website. Ask just about anyone and they'll tell you that their personal expenses are rising, but the metric that the government uses to indicate rising inflation remains flat.

As the story points out, many retirees are still enjoying a significant boost that they received based on the 2009 5.8% increase during a temporary spike in oil prices. For the last two years the benefits have remain unchanged, even while active duty military salaries have increased.

So what does this mean for those who are still serving on active duty? It indicates that you need to commit yourself to a personal savings plan. You can't rely on the government to cover increases in your personal cost of living. They're using averages which guarantee that they don't directly reflect your wants or needs.

Begin by saving this years raise, at least 1.4% of your base pay, and allocate it to your Thrift Savings Plan. If we get a ROTH TSP option this year, apply it to that account. When able, increase your allocations with your goal of putting in the full $16,500 per year. You can use the table posted in my previous post to calculate the percentage of your base pay that you need to allocate monthly to max out your contributions.

In time you'll be able to offset flat years of no-COLA adjustments with gains in your personal retirement savings. You'll call the shots on how much you want your monthly pay to increase, and take advantage of tax deferred growth along the way.

1 comment:

Cara said...

Yes. My dad is doubling his saving efforts. He’s aiming one in some retirement communities in PA. We all know that what you’ve stated here is all truth and all we can do is save and adhere to the fact that there is no way of escaping this. Just that, he wants a retirement, Pennsylvania or anywhere around its metropolis. Reminders are good points. And you gave it all here.