How much does the COLA protect a retirees pension benefit from inflation?
That depends upon the actual inflation rate. The COLA provides complete protection from inflation, if the annual inflation rate is no more than three percent. Taking as an example a State employee who retires after 20 years of service with a final average salary of $25,000, four percent inflation will erode three percent of the benefit after 20 years while six percent inflation will erode 14 percent of the benefit after 20 years. However, Social Security benefits offer full protection from inflation. A portion of a VRS retiree’s total retirement income is from Social Security. This helps to lessen the impact of the fact that the VRS benefit is not fully protected.
Related Questions
- If a member is eligible for pension and dies in service without an insured death benefit or widows pension, is his beneficiary entitled to a refund of his contributions?
- How is pension growth assessed in a defined benefit scheme such as the Teachers’ Pension Scheme?
- Whats the difference between 401k plans and defined benefit (pension) plans?
