With inflation running at a rate of 5.4 percent a year, military retirees and disabled veterans are getting a 5.8 percent pay increase — while active-duty service members and reservists are getting a 3.9 percent pay increase.
Although current service members may feel cheated, there's really nothing wrong with this picture.
The two annual increases became set for the end of the year after two events that came just days apart:
• President Bush signed the 2009 Defense Authorization Act on Oct. 14 that includes the 3.9 percent pay increase, an amount that would have been 3.4 percent if Congress had not backed a bigger increase than what the White House originally proposed.
The 3.9 percent military raise, which applies to basic pay and drill pay, takes effect on Jan. 1 and should first appear in mid-January paychecks.
• Two days later, the Labor Department's Bureau of Labor Statistics announced the September results of its monthly survey of the cost of goods and services that allowed the calculation of the automatic cost-of-living adjustment in military and federal civilian retired pay, military survivor benefits and Social Security.
The 5.8 percent retiree COLA is based on a comparison of consumer prices in the third quarter of the fiscal year — July, August and September — to the third quarter of the previous fiscal year.
Veterans' disability pay, dependency and indemnity compensation for survivors, and pensions for low-income veterans, don't automatically increase each year, but Congress traditionally orders that these veterans' benefits increase by the same amount. The 5.8 percent increase takes effect on Dec. 1, and first appears in Jan. 1 checks.
The fact that current and former service members are not getting the same increase should come as no surprise, said retired Air Force Col. Steve Strobridge of the Military Officers Association of America, a former director of compensation for the Air Force.
"The pay raise and the retiree COLA are based on different things, and it would be unbelievably rare for them to be the same," Strobridge said.
In fact, over the last 40 years, the two amounts have never been the same.
Pay raises since the start of the all-volunteer force in 1971 have been designed to keep military wages competitive with the private sector, he said. The federal government skimped on raises in 1980s and '90s, which some military advocates say allowed a gap to grow between military and private-sector raises that peaked at 13.5 percent in 1999. The pay gap has been shrinking since 2000 because annual military raises have been slightly larger than private-sector increases.
The pay gap today is 3.4 percent, and it will fall to 2.9 percent after the Jan. 1 raise.
Retired pay increases have a different purpose, Strobridge said. "The idea here is to protect the value of retired pay so the purchasing power of your check remains the same as it was on the day you retired," he said.
Big COLAs — and the 5.8 percent hike is the biggest since 1982 — are not necessarily good news, Strobridge said.
"When people get big COLAs, they are getting them because there have been big increases in prices," he said. "Since most military retirees do not live on their retirement check alone, that means they are not fully protected."
Anticipating complaints from active-duty service members that they are being cheated by getting a smaller raise, Strobridge said the two different formulas generally work out fine for both groups.
"One is bigger one year, the next is bigger another year," he said.
Since 1970, military raises have outpaced retirement COLAs 23 out of 40 times, including in seven of the last 10 years. But retiree COLAs have been larger than military raises in three of the last four years, he said.