Military Retirement COLA: How the Adjustment Is Calculated and Paid

The military retirement COLA for 2026 is 2.8 percent, applied to gross retired pay effective December 1, 2025, with the first increased payment landing in retiree bank accounts on December 31, 2025.¹ Survivor Benefit Plan annuitants see the adjustment in their January 2 payment. That headline number applies to most retirees under the Final Basic Pay, High-3, and Blended Retirement systems, but a few groups get something different, and it helps to understand where the 2.8 percent comes from before you check your Retiree Account Statement.

How the Percentage Is Set Each Year

The rule sits in 10 U.S.C. § 1401a, which ties military retired pay to the “Consumer Price Index (all items, United States city average)” published by the Bureau of Labor Statistics.² The calculation uses the “base quarter,” defined as July, August, and September. The CPI values for those three months are averaged, and that average is compared to the base index from the most recent year a COLA was actually triggered. The percentage difference, rounded to the nearest tenth of a percent, becomes the COLA.

If the third-quarter average is flat or lower than the base index, no COLA occurs, and retired pay does not go down. The base index also stays frozen at its previous high point, so the next comparison still measures against the last real increase.

The Social Security Administration announces the figure each October based on the finalized third-quarter data. The 2026 percentage was announced on October 24, 2025.³ SSA makes the public announcement, but the military COLA is a separate legal requirement carried out by the Secretary of Defense under § 1401a.

When You Actually See the Money

The adjustment takes effect December 1 each year. Because military retired pay is paid in arrears, the first payment reflecting the new rate arrives on December 31. SBP annuitants receive theirs on January 2.¹

To confirm the new gross amount, log into myPay and pull your Retiree Account Statement. DFAS posts a new statement by the first of each month, plus an extra one anytime your account changes.⁴ If you have an email address registered in myPay, you will get a notice whenever a new statement is available.

If You Retired This Year, Your COLA Is Prorated

New retirees rarely get the full percentage the first time around. The statute scales the adjustment based on how much of the inflationary window you were actually collecting retired pay. Retire earlier in the year, get more of it; retire after the base quarter closes, get none until the following year.

For High-3 and Blended Retirement System retirees, the 2026 COLA breaks down this way:⁵

Retired before January 1, 2025: full 2.8 percent
Retired January 1 through March 31, 2025: 2.6 percent
Retired April 1 through June 30, 2025: 1.6 percent
Retired July 1 through September 30, 2025: 0.7 percent
Retired October 1 through December 31, 2025: 0.0 percent

That last group is not a mistake. The base quarter runs through September, so someone who retired after it was still drawing active-duty pay during the entire measurement period. Their first COLA comes the following December. From year two onward, everyone receives the full percentage.

Reduced COLA Under CSB/Redux

If you elected the Career Status Bonus under CSB/Redux, your annual COLA is the standard percentage minus one full point. For 2026, that means 1.8 percent instead of 2.8.⁶ The gap compounds year over year because each smaller increase becomes the base for the next one.

At age 62, DFAS recomputes your retired pay as if you had been in the High-3 system all along, applying full COLAs to arrive at the restored amount. Your monthly check jumps at that point. After the restoration, though, annual COLAs go back to being reduced by one percent.⁶ The catch-up fixes the dollar amount, not the formula.

Reserve and Guard members who elected Redux and retire at 60 (or earlier if eligible) escape the reduced multiplier used to compute gross pay before age 62, but they are still subject to the one-percent COLA reduction. Disability retirees who chose Redux face the same reduction.⁶

What the COLA Does to Your SBP

If you participate in the Survivor Benefit Plan, the same percentage that raises your retired pay also raises your SBP base amount, your monthly premium, and the annuity your survivor would eventually receive.⁷ Spouse coverage premiums are 6.5 percent of the elected base amount, so a 2.8 percent COLA lifts the premium roughly 2.8 percent. The trade-off is that your survivor’s annuity, 55 percent of the base amount, keeps pace with inflation rather than losing ground each year.

Redux retirees who elected SBP see the same COLA-minus-one reduction on the SBP annuity. The annuity is readjusted at what would have been the retiree’s age 62 to restore the lost ground, and reduced COLAs resume from there.⁸

VA Disability Compensation Gets Its Own COLA

If you receive both military retired pay and VA disability compensation, two separate agencies apply two separate COLAs under two separate legal authorities. DFAS handles retired pay; VA handles disability compensation. Both came in at 2.8 percent for 2026, but they can diverge in other years.

Retirees with a service-connected rating of 50 percent or higher can collect both payments in full without offset through Concurrent Retirement and Disability Pay, and each stream gets its own COLA.⁹ If your rating is below that threshold and VA compensation still offsets your retired pay dollar-for-dollar, the VA portion is not taxable.

Taxes on the Extra Money

Military retirement pay is fully taxable at the federal level, and the COLA-driven increase is treated no differently from the rest of your retired pay.¹⁰ Each annual bump pushes your gross retirement income slightly higher, which can matter if you are near a bracket boundary or an income-tested benefit threshold.

Disability retirement pay tied to a combat-related injury is excluded from taxable income, and VA disability compensation is nontaxable regardless of amount.¹⁰ The VA portion of a CRDP payment stays tax-free after the COLA is applied.

A Note for BRS Retirees Who Took the Lump Sum

The Blended Retirement System uses the same § 1401a formula for monthly retired pay as the legacy High-3 plan, and both receive the identical percentage each December. The difference is the lump sum option. A BRS retiree can elect 25 or 50 percent of the discounted present value of future retired pay as a lump sum at retirement, with the remaining annuity reduced until Social Security full retirement age. That calculation bakes anticipated future COLAs into the upfront check using a discount rate set by DoD. If actual inflation later runs higher than the assumed rate, the lump sum recipient ends up behind where they would have been drawing full monthly COLAs. TSP contributions unique to BRS are a separate account and are not affected by the retired pay COLA.

1
Defense Finance and Accounting Service. 2026 COLA for Military Retirees and SBP Annuitants
2
Office of the Law Revision Counsel. 10 USC 1401a – Adjustment of Retired Pay and Retainer Pay to Reflect Changes in Consumer Price Index
3
Social Security Administration. Social Security Announces 2.8 Percent Benefit Increase for 2026
4
Defense Finance and Accounting Service. Retiree Account Statement (RAS)
5
Soldier for Life. 2026 Cost-of-Living Adjustments (COLAs) to Retired and Retainer Pay
6
Defense Finance and Accounting Service. Career Status Bonus (CSB)/REDUX
7
Military Compensation and Financial Readiness. Survivor Benefit Plan (SBP) Spouse Coverage
8
Military Compensation and Financial Readiness. Survivor Benefit Program CSB/Redux Cost and Benefits
9
Defense Finance and Accounting Service. Concurrent Retirement and Disability Pay (CRDP)
10
Financial Readiness. Financial Planning for Transition – The Tax Implications of Retirement