Military Retirement COLA 2027: What You Need to Know

What Is the Military Retirement COLA for 2027? 

Military retirees will receive a 3.6% cost-of-living adjustment (COLA) in 2027 to help their retirement pay keep pace with inflation. The increase is slightly higher than COLAs in the prior three years, which were in the 2.5% to 3.2% range. The 2027 figure reflects a rise in the cost of consumer prices, as measured by government inflation data.

What Have COLA Increases Been in Recent Years?

Here are the COLAs for military retiree pay since 2020:

What Is a Military Retiree COLA?

A cost-of-living adjustment, or COLA, is an increase in compensation that helps offset rising consumer prices. COLAs originated in the 1970s — during a period of high inflation — to help government workers keep pace with rising costs. For military retirees, a COLA typically increases their pension income.

The U.S. Department of Labor bases the annual military retiree COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures price changes across a broad basket of goods and services. If CPI-W is flat or lower from one year to the next, military retirement pay remains the same.

Be sure you don’t confuse the retiree COLA with active-duty and overseas cost-of-living allowances. The COLA for military retirement pay, Social Security, and VA disability is an annual pay adjustment to protect the buying power of a recipient’s benefit as prices rise over time. Cost-of-living allowances are different programs that help offset higher living costs in certain U.S. and overseas locations where service members are stationed.

Who Receives Benefits that May Qualify for a COLA?

Several military-connected groups may receive benefits that are adjusted annually for inflation with a COLA, including:

• Active-duty retirees
• Reserve retirees
• Disabled veterans
• Survivor Benefit Plan recipients
• Surviving spouse recipients of Dependency and Indemnity Compensation

Eligibility and payment rules vary by program, but knowing which of your benefits may qualify for a COLA can help you anticipate how annual inflation adjustments could affect your income.

How Is the Military Retiree COLA Determined?

The average CPI-W reading for July, August and September is compared to the average for the same three-month period a year earlier. The percentage increase is the next year’s COLA.

First-year retirees who left active duty between Jan. 1 and Sept. 30 receive a partial COLA to prevent their retirement pay from reflecting both a recent active-duty pay raise and a full annual COLA. This partial COLA is calculated differently depending on an individual’s retirement plan.

Retirees who joined the military after Aug. 1, 1986 and are in the Career Status Bonus/Redux retirement plan receive a COLA that is one percentage point lower than most other military retirees.

When Does the 2027 COLA Take Effect?

The 2027 COLA becomes effective Dec. 1, 2026. Military retirees will see the additional pay beginning Dec. 31, 2026.

Is the COLA for Military Retirees the Same as the Annual Pay Raise for Active-Duty Service Members?

No. The retiree cost of living adjustment (COLA) and the annual active-duty pay raise are different. Retiree COLA is tied to CPI-W. The annual active-duty pay raise is benchmarked to the Employment Cost Index (ECI), which tracks private-sector wage growth, though Congress and the president can modify the final pay-raise amount.

For details on next year’s pay increase for currently serving members, see our 2027 military pay raise article.

Is the Military Retiree COLA Taxable?

Yes. Military retirement pay, including any increase in it from a COLA, is subject to federal income tax. State tax treatment of military retirement pay varies.

How Does the Military Retiree COLA Compare to the Social Security COLA?

Both are tied to CPI-W and announced annually. Military retiree COLA adjusts retired pay, while Social Security COLA adjusts benefits. Military retired pay, including a COLA, is federally taxable, while taxation of Social Security benefits depends on your combined income.

As mentioned previously, some REDUX retirees receive a COLA that is reduced one percentage point below CPI-W until a one-time catch-up adjustment at age 62.

Another difference is timing. The military retiree COLA takes effect with December’s pay while the Social Security COLA typically arrives in January benefit payments.

Are Other Military, VA or Government Benefits Affected by the COLA?

Yes. Survivor Benefit Plan annuities, VA disability compensation and pensions, and Social Security benefits are adjusted to keep pace with inflation using the same COLA that applies to military retirement pay.

Comparing COLA Features of Military and Government Benefits

The table below provides an overview of COLA details for military retirement pay, VA disability benefits, and Social Security.

Your Military Pension and Full Retirement

Retirement planning for military families often looks different than for civilian retirees. TSP withdrawals and tax strategies may need to be adjusted to coordinate with military pension income, Social Security, and other benefits. Factors like TRICARE coverage, state tax rules, and second-career earnings can also influence when and how to draw income in retirement.

Careful coordination across these areas can help you make informed decisions about your retirement income, manage tax considerations, and take advantage of the unique benefits you’ve earned through military service.

To learn more about how you can leverage military benefits to help prepare for your retirement, check out our article on income planning for retirement, or reach out to a First Command Financial Advisor near you.

First Command and its affiliates do not provide legal or tax advice. This material is for informational purposes only and should not be relied on for legal or tax advice. You should consult your own legal or tax advisors before engaging in any transaction.

TSP funds have very low administrative and investment expenses and, low expenses can have a positive effect on the rate of return of your investment.