Pension COLA Calculator

How much is your cost-of-living adjustment worth — in today's dollars?

A federal or military pension comes with annual COLA increases that compound over your retirement. A corporate pension usually does not. That difference is worth tens of thousands of dollars over a long retirement — and it changes the lump-sum-vs-annuity math significantly. This calculator quantifies it.

Why COLA transforms the lump-sum-vs-annuity decision

When comparing a pension annuity to a lump sum, most calculators — including our Lump Sum vs Annuity Calculator — assume a flat monthly payment. That's correct for corporate pensions, which rarely have inflation adjustments. But it significantly understates the value of federal and military pensions, which carry COLA provisions.

A 2.0% annual COLA over 25 years compounds to a 64% increase in monthly payment by year 25. A 2.8% COLA over 25 years compounds to an 99% increase — your payment nearly doubles. That's a fundamentally different income stream than a flat corporate annuity.

The FERS "diet COLA" formula — and why it matters in 2026

FERS retirees don't get the same COLA as CSRS retirees or Social Security recipients. Congress designed a "diet COLA" that limits increases when inflation is in the 2–3% range:¹

In 2026, the CPI-W rose 2.8% — squarely in the middle band. Result: CSRS and military retirees received 2.8%, but FERS retirees received only 2.0%.¹ Over a 25-year retirement, a consistent 0.8 percentage point gap compounds to roughly a 21% difference in accumulated COLA increases.

This diet COLA gap is one reason the NPV of a FERS annuity is slightly lower than an equivalent CSRS annuity — and why FERS employees with the TSP (a defined contribution plan) are in a somewhat different position than CSRS employees who are entirely pension-dependent.

COLA and the lump sum decision

If you're evaluating a lump sum buyout from a corporate employer, the absence of COLA on your former pension is actually a point in favor of the lump sum for some people. Without COLA, the real (inflation-adjusted) value of your annuity declines every year. A lump sum invested in a diversified portfolio can potentially outpace inflation.

For federal and military retirees, the calculus flips. The built-in COLA makes the annuity substantially more valuable — and raises the hurdle rate a lump sum would need to beat. If your break-even analysis shows annuity payback at age 80, the COLA-adjusted annuity actually breaks even even earlier, because each year's annuity payment is larger than the static model assumes.

COLA and Medicare / IRMAA interaction

Annual COLA increases compound your pension income each year — which has Medicare implications. Every COLA adjustment pushes your modified adjusted gross income higher, potentially crossing an IRMAA tier and triggering an Income-Related Monthly Adjustment Amount surcharge on Medicare Part B and D premiums. In 2026, the first IRMAA tier begins at $109,000 (single) / $218,000 (MFJ).⁴

Federal retirees who are also doing Roth conversions face a compound effect: COLA raises the pension floor, reducing the Roth conversion room before hitting an IRMAA threshold. Our pension and Medicare IRMAA guide walks through the planning mechanics.