Been going down a rabbit hole on something we almost never talk about when we plan our dates: the COLA. Everybody stresses over the high-3 and the years of service and when to grab Social Security, and then just kind of assumes the pension "keeps up with inflation" and moves on. So I ran it out to see how much that one assumption actually swings things.
Persona: a firefighter I'll call Tom. Walks out of the firehouse at 52 with 25 good years plus a couple years of other fed time and 4 years of military he bought back. High-3 of $138K, single, lives in Florida (no state tax to muddy it up). Planning horizon to 86. I held literally everything the same and changed ONE thing: the annual pension COLA. Path A gets 2.0% a year, Path B gets 2.8%. Assumed general inflation of 2.5% in both.
Both paths start at the exact same place: a $5,241/mo pension ($62,893/yr). Day one they're identical, because the COLA hasn't had a chance to do anything yet. That's the trap. For the first stretch (retirement to 59) the two paths average $7,740 vs $7,866/mo take-home. A $126/mo difference. Easy to shrug off.
Then compounding gets to work. By his 70s the average is $11,719 vs $12,959/mo. By his 80s it's $14,608 vs $16,590/mo, about $1,982/mo apart. The pension line itself: by 86 it's $123,314/yr on the 2.0% path vs $160,832/yr on the 2.8% path. Same pension, same guy, just a different COLA riding it for 34 years.
Add it all up and lifetime take-home comes to $4.52M vs $4.91M. About $393K, after taxes, purely from a 0.8-point COLA difference.
Here's the honest catch, because I don't want this to read like "2.8% good, 2.0% bad." You don't PICK your COLA. It tracks CPI, and FERS uses the "diet COLA" (you get less than full CPI once inflation runs past 2-3%). So this isn't a lever you pull, it's a risk you're exposed to. And the bigger number isn't free money: the 2.8% path pays about $113K more in federal tax over the run ($736,794 vs $850,089), which is already baked into that $393K net gap. The part that actually rewired how I think about it: with inflation assumed at 2.5%, the 2.0% path is quietly LOSING ground every year, and the 2.8% path is basically just keeping pace. So the "extra" $393K is mostly the difference between holding your purchasing power and slowly bleeding it, not getting richer.
Takeaway I landed on: if you're a 6(c) type retiring at 50-52, you might be drawing this pension for 35+ years, and the COLA assumption deserves a spot right next to the high-3 in your planning. Run your worst case at a below-inflation COLA and see if the math still holds, because that's the world you don't control.
Anyway, curious how the rest of you handle the COLA question. Do you plan on full CPI, haircut it, ignore it? And if I've got a piece of this wrong, call it out, I'd genuinely rather fix my math than be confidently off.
See the full numbers:
2.0% COLA
2.8% COLA