Chapters

00:00 - Introduction to COLA and its importance for Mississippi retirees

00:28 - Clarifying the purpose of a COLA and inflation’s effect on purchasing power

00:57 - Defining the Consumer Price Index (CPI) and inflation history

01:25 - How Mississippi’s fixed 3% COLA exceeds inflation, providing inflation protection

01:47 - The uniqueness of Mississippi’s COLA compared to other states

02:06 - The fixed and compounded nature of Mississippi’s COLA as a benefit

02:35 - The concept of compounding and its impact over 20+ years

02:44 - Comparing Mississippi’s COLA to other state pension plans

04:03 - How the fixed, growing COLA stabilizes retirement income

04:31 - Future episodes on COLA eligibility and calculations

04:48 - The long-term security that COLA provides for retirees

05:07 - Resources for official PERS rules and guidance

05:13 - How to submit questions and stay informed about future episodes

Transcript

Welcome back to the PERS Pro channel. Today we're tackling one of the most critical topics for your retirement security, the cost of living adjustment, otherwise known as COLA. What is the cost of living adjustment and why does it matter to Mississippi PERS retirees? That is today's question.

Before we dive in, please remember this. I am not an official part of the Public Employees Retirement System of Mississippi, otherwise known as PERS. This video is for educational purposes only. Always consult with a qualified professional for tax, legal, or investment advice.

So what is a COLA? Simply put, a cost of living adjustment is an increase in your pension benefit designed to help maintain your purchasing power as prices rise due to inflation. Without a COLA, your fixed retirement check would buy less and less over time.

Consumer Price Index, or CPI, is a metric often used to estimate annual inflation in the United States. inflation has averaged 2.56 % the past 25 years. Without a COLA, it would feel like you were losing 2.56 % of your PERS benefit every year due to inflation.

For Mississippi PERS retirees, the COLA is an incredibly valuable benefit. Unlike many states where COLA's are tied to unpredictable funding levels or require legislative approval, the Mississippi PERS plan for tiers one through four currently provides a fixed annual increase.

Specifically, your current COLA is a fixed 3 % and it is compounding. This fixed rate has historically exceeded the average rate of inflation, making it one the most generous inflation protections available to public retirees and is often referred to as the 13th check.

Want to know if you're eligible for this benefit? Well, that's the topic of our next video. Make sure you're subscribed so you don't miss, "Am I eligible for the Mississippi PERS cost of living adjustment?"

The key word that makes the Mississippi PERS COLA so valuable is compounding. Let me show you why this matters. With a compounding COLA, the 3% increase is calculated based on your new higher retirement benefit amount each year. It's like earning interest on top of last year's interest. Over 20 or 30 years in retirement, this makes a huge difference to your lifetime income. 

In fact, the compounding COLA accounts for a significant portion of the total value of your retirement benefit. If we use the rule of 72, your annual COLA would equal your annual PERS benefit after 24 years. The COLA is essential protection that helps secure your financial future for the entirety of your retirement. 

For a deeper dive on how this works, we'll be breaking down the math in a future episode titled "Calculating your Mississippi PERS cost of living adjustments, the simple and compounded 3 % formula explained.”

The Mississippi COLA stands out when you compare it to other states, especially for teacher pensions. The question is often asked, what percentage of state teacher pensions have a COLA and is it compounded?

The reality is that while approximately three-fourths of state and local pension plans offer some form of automatic COLA, many of those plans have caps, are non-compounding, or are conditional on the plan's financial health. Mississippi's fixed compounded 3 % is rare and a major strength.

As you can see, the fixed and compounding nature of the COLA for eligible Mississippi PERS members provides a stability and assurance that many of our peers and surrounding states simply do not have.

Important note, as you may be aware, new PERS members in Tier 5 do not have a guaranteed COLA. We will be dedicating a whole episode to COLA eligibility by hire date so watch for the future episode titled, Mississippi PERS Tier Talk eligibility based on your hire date” soon.

For the official rules and eligibility details, you can always check out the PERS resources directly.

If you have a question about COLA, PERS, or anything else related to personal finance that impacts PERS members, please visit our website at perspro.ms and submit your question for a future episode.

And if you found this video helpful, can thank us by simply liking the video. Thank you for your valuable public service to the state of Mississippi. We'll see you next time.