Pay « Joel Schofer's Career Planning Blog

Colonel Douglas Fowler graduated the Air War College in June 2020 and wrote The COLA Trap for one of his papers. He has three simple recommendations to optimize your retirement pay based on the first year COLA that influences your annual pension in following years:

Retire at the end of a fiscal quarter: 01MAR, 01JUN, 01SEP, 01DEC

Avoid retiring at the beginning of the fiscal year 01OCT

Maximize your COLA by retiring 01MAR (This means retire in FEB, retirement pay starts 01MAR)
Colonel Fowler explains how the legacy High-3 pension system is calculated using the average of the service member’s highest 36 months of base pay. Active duty pay is determined by the National Defense Authorization Act (NDAA), while the retiree COLA is associated with inflation, and determined by the Consumer Price Index, not the NDAA. Because the COLA is calculated by an automated formula, it is possible to have a pay inversion, a concept where a service member who retires a couple months earlier than a control matched peer can earn a larger pension. This happens because the Consumer Price Index is used to determine inflation. The difference is taken between the base quarter (July-September) of the calendar year you retire and the quarter before retirement. If you retire October-December, you subtract the quarter before retirement (July-September) from your base quarter (July-September) which equals zero months difference in inflation and your COLA is zero. However if you retire January-March, you subtract the quarter before retirement (October-December of the previous year) from your base quarter (July-September of the current year), which has six months of spacing for a larger difference in inflation. This COLA formula applies to both officers and enlisted. Also note service members retiring (not medically) can only retire on the first day of the month. Colonel Fowler’s “The COLA Trap” lays out his three recommendations to optimize your military retirement.

After reading his paper, you can follow the most recent retirement COLAs here:
https://militarypay.defense.gov/Pay/Retirement/cola/

Dr. Jesse Schonau

The views expressed in this blog post are those of the author and do not reflect the official policy of the department of the Navy, Department of Defense, or U.S. Government.