Jeff Kempker, CEBS, CRC
How much do you know about LAGERS’ cost of living adjustments (COLAs) after you retire? If all you know is what you have heard from your buddy Joe, who retired last year, you probably have heard about a magical October 1st date. According to Joe, if you choose to begin drawing your LAGERS benefit after October 1st, you will be leaving a lot of money on the table. And since Joe is an expert in matters of LAGERS retirement plan provisions, you are inclined to believe him. So in preparing for your retirement, you stress about the looming October 1st date to ensure everything is in order to retire before the first leaf falls. Is all of this stress over a measly little date necessary?
Joe is right that October 1st has some significance to LAGERS cost of living adjustments. Here are the facts: LAGERS’ Board of Trustees is allowed to grant a COLA to retirees each year, provided the system is financially healthy enough to do so. And since LAGERS’ Board is always extremely focused on the financial security of the system, COLAs have traditionally been given each year. The amount of the COLA is based on the Consumer Price Index (CPI), which is a measure of inflation, and benefits are adjusted each October 1st.
Here is the part Joe is referring to: In order to be eligible for your first COLA, you must be retired for 12 months including an October 1st. Meaning if you retire October 1, 2014 you will receive your first COLA on October 1, 2015. If you retire November 1, 2014 you won’t receive your first COLA until October 1, 2016. But there is a very important detail that Joe is missing.
If you miss out on a COLA one year because of your retirement date, don’t sweat it. When you receive your first increase, you are going to get a little more than everyone else. That’s right. LAGERS is going to catch you up for the COLA you missed out on the year before. LAGERS’ COLAs are cumulative, which means we want all of our retirees to have 100% purchasing power with their monthly benefit. That being said, Missouri state law caps annual COLAs at 4% so in no event will anyone receive greater than a 4% increase in a one-year period. During times when the CPI is above 4% for multiple years, it may take more time LAGERS to catch everyone up, but that is ultimately our goal.
Speaking with LAGERS members over the last 10+ years I have heard this October 1st concern time and again. After all, timing is everything in retirement planning and choosing your retirement date to maximize your benefits is always a good idea. However, if you chose to worry about the October 1st deadline at all, perhaps consider it the last item to check off your ‘retirement-to-do-list’. Don’t worry, we’ll catch you up.
Please share this with Joe and all the other October 1st conspiracy theorists out there.