How Inflation Quietly Reduces the Value of a Fixed Pension

For many FRS members, the pension plan provides steady, predictable income in retirement. While that reliability is valuable, one challenge to be aware of is inflation.

Because the FRS cost-of-living adjustment (COLA) was frozen for service earned after July 1, 2011, many retirees will see only a fractional adjustment — or in some cases, none at all. Over a 20–30 year retirement, that gradual loss of purchasing power can have a significant effect.

Understanding Inflation in Retirement

Inflation is the gradual increase in the price of goods and services. Even modest inflation compounds over time:

• At 3% inflation, costs double roughly every 24 years.

• A pension that feels comfortable at retirement may not stretch as far two decades later.

💡 *Example: A $3,000 monthly pension today could feel like $1,500 in real value after 20 years of 3% inflation.

The COLA Freeze Explained

• Before July 1, 2011: Service credit earned included a 3% COLA.

• After July 1, 2011: No COLA is earned on service credit going forward.

For members with service both before and after the freeze, COLA is prorated:

• *Example: If you worked 20 years before 2011 and 10 years after, two-thirds of your pension would continue to receive COLA adjustments, while one-third would remain flat.that would result in a reduction of COLA from 3% down to 2%.

  *The examples in this article are hypothetical and for illustrative purposes only.  

Members hired entirely after July 1, 2011, do not receive any COLA.

Why This Matters for FRS Retirees

Over time, a frozen or partial COLA means:

• Health care costs may take up a growing portion of income.

• Housing and everyday expenses may steadily rise.

• Fixed income can gradually cover less, requiring supplemental resources.

Strategies to Offset Inflation Risk

While the COLA rules can’t be changed, retirees can prepare by:

1. Building Supplemental Savings
   Using DROP, IRAs, or 457(b) accounts can potentially help offset increasing costs.

2. Including Growth-Oriented Investments
   Balancing risk with potential growth helps accounts keep pace with rising costs.

3. Coordinating Withdrawal Strategies
   Managing distributions can help extend savings alongside a fixed pension.

4. Reviewing Regularly
   Revisit your plan every few years to ensure income and expenses remain aligned.

Final Thoughts

Your FRS pension provides a reliable income foundation, but the frozen COLA means its buying power may decline over time. For those with service prior to 2011, a partial COLA will help, but it’s still important to plan for how inflation affects your overall retirement picture.

By supplementing pension income with savings, investments, and careful planning, you can help reduce the long-term impact of inflation on your lifestyle.