If you’re a Plan 1 member of the Public Employees’ Retirement System (PERS) or Teachers’ Retirement System (TRS), you can choose to reduce your initial benefit and receive an annual cost-of-living adjustment. This adjustment is called an Optional COLA and is based on the Consumer Price Index (CPI).1 The Optional COLA was created by the legislature in 1987.
If you’re interested in comparing your benefit with and without the Optional COLA, please try our Optional COLA Calculator. The calculator uses Microsoft Excel Version 97-2003 or later.
The calculator provides a simple estimate that does not include a comparison of potential interest (for example, if you didn’t elect the Optional COLA, and instead invested the difference between the monthly benefits). The calculator also doesn’t include the other COLAs you may be eligible for or the complexity of COLA Banking. You may want to consider these as you make your decision. For some, talking with a financial planner will be helpful.
If you have questions about the Optional COLA, visit our Optional COLA Frequently Asked Questions. If you don’t have Microsoft Excel, but want to use the calculator, we have staff available to help. Contact us for help creating or interpreting the calculator’s results.
After you enter your information and assumption about what will happen with inflation, the calculator displays your monthly and cumulative benefit at three milestones:
|Initial retirement benefit||You can compare your benefit with or without the Optional COLA when you first retire.|
|Monthly benefits equalize||Optional COLA benefits start out lower and grow based on inflation. The calculator highlights how old you will be when the Optional COLA monthly benefit “catches up” with the monthly benefit amount you would have received if you had not elected the Optional COLA.|
|Cumulative benefits equalize||The calculator highlights how old you will be when the Optional COLA cumulative benefit “catches up” with the cumulative benefit amount you would have received if you had not elected the Optional COLA.|
DRS would like to include your feedback as we consider future enhancements to the Optional COLA Calculator. We would also appreciate your input on the Frequently Asked Questions. To provide feedback, please contact us.
1 The Optional COLA’s maximum CPI adjustment is three percent annually.
Last Updated May 2017
If you’ve received a Retirement Benefit Estimate, use the numbers and information it provided. It includes everything you’ll need. If you don’t have one, you’ll need your:
In addition, you will also need:
The Optional COLA increase is calculated by multiplying your gross monthly benefit1 by the COLA rates based on the year you retired for a maximum of 3 percent.
$1,500 (Benefit) X .44% (July 1, 2010 COLA2) = $6.60 (Increase to benefit) For a new monthly benefit of $1,506.60
If you choose the Optional COLA your initial benefit amount is reduced. The size of the reduction is based on the estimated cost to pay the COLA over your expected lifetime. In this way, your benefit reduction is paying for the COLA.
The cost of the COLA is determined by a Plan 1 Optional COLA Factor provided by The Office of the State Actuary (OSA). The factors are based on assumptions regarding life expectancies, inflation and interest rates. If you have additional questions about these assumptions, contact the Office of the State Actuary. The Plan 1 Optional COLA Factors are provided in the Optional COLA Calculator.
Only you are able to decide. The Optional COLA Calculator is a good place to start. Consulting a financial planner is also something you might want to consider. Once you’ve looked at the data provided by the calculator, think about these questions:
The maximum Optional COLA increase is three percent. In years where the CPI increase is more than three percent, the difference is banked for future years. The banked percentage is used in years when the COLA is less than the maximum. For example, let’s say in year one the CPI was 6.48 percent, and you received a three percent increase and banked the remaining 3.48 percent. In year two the CPI was negative .27 percent. So in July of year two you used that banked amount and ended with a positive three percent COLA, and still had .21 percent in the bank for future years.
There is another time when COLA banking is useful. As explained in the last question, there is a period when members wait for the COLA to begin. The delay is dependent on your retirement date. Using the example from above, let’s say you retired in August of year one. You’re not eligible to receive the Optional COLA in July of year two, so the entire 6.48 percent was banked. In July of year three, when the CPI was negative .27 percent, you would receive a full three percent COLA, leaving 3.21 percent in the bank for future years.
The calculator may underestimate the long-term Optional COLA benefit by up to one year’s inflation rate, because it does not include COLA Banking.
1 The monthly benefit used in this calculation is your initial benefit plus any Optional COLA increases. If you have Uniform COLA increases, those must be removed from the benefit before the calculation of the COLA increase.
2 This COLA increase percentage is for a member who retired between January 1, 2009 and July 1, 2009. This percentage could vary depending on when you retire.
Active members: Update your name and/or address through your employer. That new information will soon appear in your online retirement account.