Delivered on: Thursday, October 22, 2026

To Watch on YouTube, CLICK HERE

COLAs and Federal Pay Raises for 2027

The real effect on your money moving forward

• PAY RAISES: When, why, and how they are applied—and what effect this has on your initial federal pension
• COLAs: When, why, and how they are applied—and what effect this has on how your federal pension changes over time
• PROJECTIONS: Current projections for 2027’s anticipated pay raises and how newly announced COLAs will be implemented in retirement
• DIFFERENCES: The main differences between how each is applied to CSRS and FERS—and the often significant financial impact on each

Download Handouts: CLICK HERE

Register for our next short webinar: FedImpact.com/webinar

Find a comprehensive retirement workshop for your area: FedImpact.com/attend

For an introduction to a financial professional in our network: FedImpact.com/request-to-meet

*********************************

Prefer to read instead? A Transcript of this Webinar is Below:

Welcome everyone to the FedImpact webinar on COLAs and federal pay raises for 2027. When we originally put this topic out there, we weren’t exactly sure what these numbers were going to come back at.

COLAs and Federal Pay Raises for 2027

And I know many federal employees are not super excited for what we’re going into for 2027 with respect to pay, but this session is going to help you get super clear on the difference between these two numbers for COLAs and pay raises and what you should be paying attention to as you approach and step into retirement.

You guys know me, I’m Chris Kowalik, the founder of ProFeds. We’ve got a great team here who shows up every day to do great work for federal employees and making sure that you have the ability to go in and live the retirement that you want because you got clarity on the benefits and how they work and all the complexities that go along with that get simplified.

I’m lucky that I have a team that helps me to be able to make that come to life for federal employees. Our topic today, COLAs and federal pay raises for 2027. Listen, what’s the real effect on your money moving forward?

That’s what everybody cares about. Nobody really cares about the number. They care about what it means to them in their wallet. That’s really where we’re going to be focused today. We’re of course going to review the numbers, but looking at what the ultimate effect is, is super important.

Agenda

Our agenda today, when it comes to pay raises, we’re going to talk about when they happen, why they happen, and how they’re applied. And whether a pay raise has any effect on your federal pension. It might, just depends on what the timing of all these things are.

Next up is COLAs. When, why, and how they’re applied and what effect this has on your federal pension over time. We know that there’s going to be a bigger effect here and you’ll see that in the projections. With respect to the projections for 2027, there are some things we know, some things we don’t know.

We’ll be able to break those down for you so you know exactly what we’re still waiting for clarification on. And then the differences between pay raises and COLAs and how each of these are applied to CSRS and FERS separately.

Cost of Living Adjustments

Overall cost of living adjustments and annual pay raises hopefully are making pay go up as time goes on. That’s not always the case. Sometimes we flatline a little bit. The good news is we don’t go back down. I always like to look for the silver lining and if that’s silver lining enough for you, then we’re in good shape today.

Digging into the details of COLAs and pay raises.

As we go through each one of these different types of ways that your pay is going to change, we’re going to look at it through this lens where we evaluate six different things. Who gets it? What is it based on? How much can you expect to receive? When does it get applied? Where you must live to get it and why does it affect you? Let’s start with the annual pay raise.

Pay Raises: Who gets it?

Pay raises are annual increases applied to current federal employees’ paychecks while they are still working. If you are already retired, you should not give two cares about what federal employees who are still working, how their pay is changing.

Pay raises do not matter to federal retirees. And keep in mind, what we’re talking about here is different than a change in your pay grade or a step increase. Those are obviously different ways that your pay can increase, but here we’re talking about the normal annual pay raise that typically happens in January.

Just remember, retirees are not affected by annual pay raises.

Pay Raises: What’s it based on?

Well, the pay raise levels are not really tied to a specific economic index. They’re supposed to be tied to an index, but that actually hasn’t come to fruition since that legislation was put into place.

Pay raises are often very political in nature and there’s a ton of scrutiny no matter which side is proposing the pay raise and whether that pay raise is big or small, there’s tons of scrutiny on pay raises for feds. We just need to recognize the political nature of what we’re dealing with.

Pay Raises: How much can you expect?

That’s what all of you want to know. Unfortunately, the saddest slide I get to teach all day here is that for 2027, there’s expected to be no pay raise. There is some proposed legislation that could go into effect. We’ll see.

But as of right now, we’re at zero for both the across the board pay raise and locality pay change. It’s not the first time it’s been zero. It’s just the first time in the last 10 years that it’s been zero. And I suppose we’ll see how that changes over time.

If you happen to be a special category of employee called a law enforcement officer, you will receive a 3.8% increase even though your counterparts received no increase at all in their pay.

This is similar to what happened last year, although it’s expected that the group of people that this applies to will be broader in 2027 than it was in 2026.

If you’re curious what that pay scale looks like, you can go to fedimpact.com/leo-pay-2027, and that will take you directly to the OPM page that describes more of those details.

Over the last 10 years, we’ve had an average pay raise for federal employees of 2.34%. Just to give a little perspective, certainly as you compare it to the COLAs that we’ll be talking about here shortly.

Pay Raises: When does it get applied?

Well, pay raises are typically applied in January of a given year.

The 2027 pay raise would be effective the first day of the new pay period, which in this case would be January 10th. If a pay raise comes to light and it happens before January, then by all means it will go into effect on this schedule.

January 10th will be the starting point of that pay raise. If it’s approved later, let’s say they’re all duking it out and it’s January or February before something is finalized, typically it’s retroactively paid to all the federal employees that otherwise would have received it.

Pay Raises: Where must you live to get it?

As far as regular pay raises, it doesn’t matter where you live. It is just locality pay that we are concerned about physically where you live.

And keep in mind there are a lot of different geographic areas that warrant an increase in pay as far as the powers that be who decide what those locality pay regions are.

There’s lots of different pockets and they all carry different percentages of an increase over the standard rate. Keep in mind, not only was an across the board pay raise at 0%, so was the locality pay increase. We are not expecting any kind of change to locality pay for 2027.

If you look around and you think, wow, whether it’s locality based on where I live or just in general, I’m going to guess that most of you don’t believe that things have stayed the same price.

I don’t want you to be confused with no locality pay and no regular pay raise as the agreement that everything just stayed the same price. It’s simply there’s not going to be an adjustment of your pay to account for it. Sometimes I get to be the bearer of bad news. This happens to be one of them.

Pay Raises: Why does it affect you?

Well, while you are working, a pay raise is at least in part supposed to help you keep pace with inflation and the rising costs to support the standard of living that you have. This is not perfect. This, again, is very political in nature most of the time.

It affects you in ways that might not feel big on a yearly basis, but compounding over time can be quite effective in reducing the standard of living that you have because your dollars just aren’t going as far as they used to.

As far as planning for retirement, pay raises, as you’re approaching that retirement window, pay raises cause your basic pay to go up and that basic pay is what’s used to identify the pension amount that you’re ultimately going to receive.

That goes into your high three average salary, which goes into the pension formula and ultimately your annual leave payout. There’s a lot of elements that get affected by the pay raises as you’re approaching that retirement window.

Even though pay raises themselves do not affect retirees in the same traditional sense that it does employees, it does affect that starting point of your pension and certainly the payout of your annual leave when you first leave government service.

If you stick around until January, and let’s say by some miracle there actually is a pay raise, here’s a question we get all the time in our retirement workshops.

Q 1. And that is, if I retire in January, specifically here the end of January of 2027, would any of a new pay raise get factored into my retirement pension?

Again, assuming that one gets approved. The answer is yes, but, which unfortunately is the answer to lots of questions that feds ask us because there’s always some complication.

Here’s the fuller answer. The higher pay that you receive in January of 2027 will likely make that high three of yours just a little bit higher. And when I say a little bit, I mean a little, little bit.

It’s only going to help one of the 36 months in your high three calculation. You don’t get credit for a whole year of being at that pay grade or at that new pay level with the pay raise.

You need to understand that the answer is yes, but it’s such an insignificant yes that it may not be worth it. If you’re thinking of, is it January 31st of 2027 or do I go out in December of 26, calculate the difference before making this a big decision point for you.

The Effect the Pay Raise Has on Your High-3

Here let’s talk about the high three because that’s specifically what’s being affected here. We’ve talked about this a little bit and of course I’ve done full-blown webinars on the high three calculation, but just to give a quick recap, the high three average is one component of the pension calculation itself.

It is the average of your highest three years of consecutive earnings in your career. They all have to be together. They don’t necessarily have to be at the end of your career, but most of the time they are because that’s a natural career progression.

You’re continuing to step up the ladder of all your pay grades, your step increases, all of that. And pay raises naturally affect that as well. Because most people earn their highest three years of earnings at the very end of their career, that last pay raise right before you retire may help you a little.

It is such an insignificant amount. I really want to stress that. Please don’t let this be the reason that you retire. Let this be a cherry on top if you get a little bit of a boost to your pension, but likely you wouldn’t have even noticed that there was a difference. We talked about January 31st as a retirement date and what that does to your pension.

Q 2. If you’re to retire on December 31st, prior to the pay raise going into effect, or frankly even January 9th for this particular year, so the pay raise has not gone into effect yet, does that change the amount you get for your annual leave?

And the answer is yes. That annual leave would be paid out at the pay level that you otherwise would’ve been paid at had you taken the leave instead of getting a lump sum payment for it.

But remember, the pay raise doesn’t go into effect until January 10th. Let’s say you have three months of annual leave saved up when you retire. About two of those weeks would be paid at your 2026 rate, whatever your pay level was at that time.

The rest of those weeks would be paid out at the new 2027 pay rate. Again, for this particular year, this is likely not going to matter unless there is a pay raise that goes into effect.

But for most years, I want you to realize that annual leave can very well be sweetened if it moves into a new pay year when there is a pay raise in effect.

Payout of ANNUAL Leave at Retirement

When it comes time to pay out annual leave, I want to give you just an idea of how this is calculated. Those hours of annual leave are paid out in two different ways.

They use the hourly rate as if you had continued working for your regular annual leave and any restored annual leave that you have on the books on the day that you retire.

They’re going to look at your hourly rate based on your final salary for any unexpired comp time or any credit hours that you had at the moment that you retire.

So a little bit different based on the category of annual leave that you have, but for regular old annual leave, had you kept working, you would’ve been in a pay raise environment in a normal year and you would be paid out that higher amount.

I did an entire webinar on this particular topic on annual leave and sick leave. If you want to jump into the details, like the deep end of leave and talk about the nitty-gritty calculations, you can go watch the full webinar at fedimpact.com/webinar-leave.

That will get you right into that webinar. It’s freely available to anybody who wishes to watch it. That was a segment that we did a while back, but one that I think is always valid when it comes to how annual leave and sick leave is paid out.

Q 3.  Is it better to retire at the end of December or January?

I do want to make it very clear. In either one of these scenarios, it is typically best to retire at the end of the month. We’re not talking about a difference between December 31st or January 1st.

In this case, we’re talking December 31st or January 31st. And here’s the deal. This is a little bit of a loaded question.

There are a lot of things that go into, a lot of factors that go into picking the right retirement date for you.

Sometimes we’re looking at the decade, the year, the month, the day. There’s all sorts of different levels of what a great retirement date is going to look like. We know that there are things that you give up by retiring at certain parts of the year.

We’ll talk a little bit about those today, but to do a deeper dive into the “perfect retirement date,” please go watch the full webinar at fedimpact.com/webinar-perfect, and you will see how many different levers you can pull in choosing the right retirement date for you.

I appreciate the question, but it’s way harder to answer without a lot more details. We go into those details in that webinar.

Pay Raises: Retiring December vs. January

If you were to retire the end of December, your high three won’t be affected by the pay raise. And again, we’re assuming that there actually is a pay raise.

We know as of right now, there is not one for 2027, but I want for those of you who aren’t retiring this year and you want to be thinking about how all this stuff works, I want you to realize how this all functions here. Your high three won’t be affected by the pay raise and you won’t lose any of your annual leave. You’ll be paid out lump sum.

If your annual leave would’ve naturally carried you into the next pay year, you’ll be paid out at the higher level and all that’s great. Let’s look at end of January. Your high three will be slightly increased by that pay raise.

Remember, it’ll only account for one of the 36 months that goes into your high three calculation. Temper your expectations of how much of an increase that actually is.

Next is you will lose any of your annual leave hours that exceed that max carryover limit that you have. Most of you, that’s 240 hours. If you have 400 hours sitting on the books and you’re debating, do I go December 31st or January 31st? Well, good Lord, let’s get you out of here so you don’t lose 160 hours of leave.

There’s lots of levers and the funny part is you pull one lever and it turns off another switch, right?

I mean, there’s all these connections that happen with all these different decisions that you get to make, but what we don’t want to see is you believing you’re making a good decision for yourself when in fact you’re actually causing another decision to be made for you that’s not as financially lucrative.

Let’s say you don’t have excess leave. You have 240 or less, no problem, and you want to go end of January, that’s certainly fine. Any of that annual leave will be paid out at the higher level like we talked about before. That’s it on the pay raises. Now we get to switch gears and talk about cost of living adjustments.

Cost of Living Adjustments

COLAs: Who gets it?

Well, when we think about who gets COLAs, this is an annual inflation adjustment applied to former federal employees, SERS or FERS pensions while they are retired. This has nothing to do with people who are still working.

This is only retirees. That same COLA is also applied to social security benefits. Social security being one of the legs of your three-legged retirement stool that OPM has created for you, it’s important to realize that COLAs don’t just affect your pension.

They’re going to affect social security in a different way, but they are applied there. Just remember, current employees are not affected by cost of living adjustments.

COLAs: What are they based on?

Well, the Bureau of Labor Statistics sets a number called the CPIW, and that’s just a really easy way to say the Consumer Price Index for urban wage earners and clerical workers. That’s why we give it an acronym, CPIW.

And it’s based on the rising cost of what the BLS calls a basket of goods. There is a basket of goods that includes housing, food and beverage, medical care, all the things you see on the left-hand side.

And the idea is that this is a representation of normal things that normal people purchase. And the BLS is going to evaluate, and they actually do this every month, but they’re evaluating the rising or the lowered cost of these goods.

Rising cost is inflation, lowering cost is deflation. I haven’t seen that in a while, but we need to understand what all goes into this. This is not perfect. This does not cover every possible thing that you’re paying for, but it is designed to be a normal basket of goods that the average person purchases.

On the right-hand side, we have a table. I want to walk you through it. For those of you who have been to our retirement workshop, this will look familiar, but here’s a quick review.

In determining cost of living adjustments for retirees, the amount that SERS retirees get will be different than what FERS get in most years.

Here’s how it works. When the CPIW is high, and that is determined by if it’s greater than 3%, if we’re in a high inflation area or timeline, then your CSRS retirees will get whatever that number is. And then the FIRS retiree gets that number, the CPIW, minus 1%.

Now, 1% doesn’t seem like a big deal except it’s 1% from 3%, 1% from 4%. It’s representing a larger portion of the otherwise increase that you would have received had you been a CSRS retiree instead of a FIRS retiree. There is nothing you can do about this.

There is not a box that you can check on your retirement application that says, “No, no, please give me the whole COLA.” There’s not a choice for that. This is how this works under FERS.

In the event that the CPI is moderate, so between two and 3%, remember CERS retirees are always going to get whatever the CPIW number is, and FERS are going to get 2%.

They’re not going to take off the whole percentage point. They’re just going to bottom floor you at 2%. In the event that inflation is low, so less than or equal to 2%, SERS and FERS retirees will get the exact same change to their pension.

I can already feel the questions or the comments coming through the Q&A area here in the webinar, and that is, “This is so unfair. Why is it this way? What can be done?”

Listen, this is the way the legislation was written back in the mid – 80s, and this has been this way for a very long time. I’m not saying it’s right. I’m not saying we like it.

It just is what it is. We can fight it or we can recognize that this is in fact the way your pension is going to be affected in retirement and then put the plan in place to make sure that despite what happens with inflation, you have the ability to access the money that you need to live the retirement that you want.

That’s how we give you agency over your own future instead of feeling like you’re knee-jerked all over the place by decisions like the CPIW.

COLAs: HOW much can you expect?

Let’s talk about how much you can expect. The first is COLAs are not guaranteed each year. Even though they’re tied to that consumer price index, that also can be zero.

For 2027, it is not zero. It is 3.6%. That was just recently announced. What that means based on the prior table is that CERS retirees are going to get a 3.6% increase to their pension.

Meanwhile, FIRS retirees get a 2.6% change to their pension. If you’re kind of curious what this looks like over the last 10 years, we have that breakdown for you on the right-hand side. On average, we’re at 3.44% for our CSRS retirees and 2.83% for our FERS retirees.

Give you an idea of where we are in that. Obviously through COVID, we had high inflation, lots of things happening, of course, during that time. We have some elevated numbers in there, but very important we realize that when you get these changes to your pension based on the COLA, this is not you ever getting ahead.

We should not praise high COLAs because it means everything around you got more expensive, and it probably got more expensive than the percentage that comes out in the CPIW.

Resist the urge to cheer when there is high COLA. It means everything around you got more expensive.

COLAs: WHEN does it get applied?

When do COLAs get applied? A couple of important dates I want you to know. The first is that COLAs get announced in mid-October. They were just recently announced, which is why I timed this webinar the way that I did to make sure that we at least had that number.

That COLA is applied to your December pension accrual, and you’re going to get that check, that pension check in January. There’s a little bit of a lag between the time it’s announced, the time that it’s applied, and then the time that that money is actually payable to you in the form of your check.

As far as when COLAs get applied, there’s another important factor for our CSRS retirees, however old you were when you retired doesn’t matter. COLAs are going to get applied right away in that January following the year you retire, COLAs would be applicable. You won’t get the whole thing.

I’ll show you how that works here in a second, but it would be payable right away. For FERS retirees, you will not begin being eligible for COLAs until you turn 62. You turn 62 the following January, this all happens, right? The COLA was announced in October of that year.

It went to effect in December. It gets payable in January. That first COLA, regardless if you’re SERS or FERS, that first COLA may very well be prorated based on the number of months of the prior, what we call the COLA year that you are retired.

I want to start with a quick question and then we’ll give you a table to reference. The question is, when it comes to timing,

Q 2. If I retire December 31st of 2026, do I get the COLA in January of 27?

Let’s assume this person is already 62, under FERS, all of that. Still the answer would be no.

And the reason is, is that new retirees only get a prorated portion of the 2027 COLA or whatever the new year’s COLA is based on how many months of the prior COLA year that they were receiving a pension.

We’re talking about receiving the pension in December of 2025 through November of 2026. Well, if you retire in December of 2026, you didn’t get a pension in any of those months between December 2025 and November of 2026. Because they were receiving no pension during that time, so zero months, they get 0% of the COLA. Let’s look at this a little bit differently.