Rich DeColibus to STRS Board re: COLA

From Rich DeColibus, July 10, 2009
Subject: COLA

Gentle(wo)men:

I understand eliminating the current 3% COLA for retirees is under consideration. Just so you know what the real effect of that would be, please take a look at the chart below. It assumes an individual retires with a pension of $40,000 and lives twenty years. The chart shows the current COLA-adjusted value of the pension. Of course, without the COLA, the value remains at $40,000 all twenty years.

Year..........Pension
..1............$41,200
..2..............42,436
..3..............43,709
..4..............45,020
..5..............46,370
..6..............47,762
..7..............49,194
..8..............50,670
..9..............52,190
10..............53,756
11..............55,369
12..............57,030
13..............58,741
14..............60,503
15..............62,318
16..............64,188
17..............66,113
18..............68,097
19..............70,140
20..............72,244

As I believe is obvious, there is a lot of difference between $40,000 and $72,244, especially when health care costs start to mount at that stage in life. In short, that little 3% amounts to $307,059 over twenty years (based on a $40,000 pension) and when you start to talk about reducing someone's future income by close to a third of a million dollars, methinks you need to be very, very careful of what you do.

Rich DeColibus