You've served 20, 25, maybe 30 years. You've done the math on your retirement pay. You've picked your retirement date. But have you considered the COLA trap?
This little-known quirk in how military retirement pay is calculated can mean the difference between maximizing your benefits and leaving thousands of dollars on the table—every single year for the rest of your life.
The term "COLA trap" was coined by Air Force Col. Douglas Fowler in a research paper at the Air War College. Also called a "pay inversion," it describes how retiring in certain months results in permanently lower retirement pay than retiring just a few months earlier or later.
Table of Contents
- What Is the COLA Trap?
- How Military Retirement COLA Works
- Your First-Year COLA: Where the Trap Springs
- 2026 Quarterly Breakdown: Best and Worst Months
- Real-World Examples: The Cost of Bad Timing
- The Lifetime Impact: How It Compounds
- Optimal Retirement Dates for 2026
- Special Warning for REDUX Retirees
- Action Steps: Avoiding the COLA Trap
- Frequently Asked Questions
What Is the COLA Trap?
The COLA trap occurs because of how your first Cost of Living Adjustment is calculated differently than all subsequent COLAs.
Here's the counterintuitive truth: Retiring sooner can sometimes result in bigger retirement checks than retiring later.
This "pay inversion" happens because:
- Your first COLA is prorated based on the quarter in which you retire
- The calculation compares inflation between different quarters
- Some quarter combinations result in much higher first-year COLAs than others
- Once you fall behind, every future COLA is calculated on a lower base
Example: E-8 with 26 years of service. The March retiree earns $3,120 more per year—permanently.
How Military Retirement COLA Works
Before diving into the trap, let's understand how COLA normally works:
The Annual COLA Process
- Measurement Period: The Bureau of Labor Statistics measures inflation using the Consumer Price Index for Urban Wage Earners (CPI-W)
- Comparison: The average CPI-W for Q3 (July-September) of the current year is compared to Q3 of the previous year
- Announcement: COLA is announced in October
- Effective Date: The increase takes effect December 1
- Payment: Military retirees see it in their December 31 payment
2026 COLA Details
- COLA Rate: 2.8%
- Effective Date: December 1, 2025
- First Payment: December 31, 2025
- REDUX Rate: 1.8% (COLA minus 1%)
Recent COLA History
| Year | COLA % | REDUX % |
|---|---|---|
| 2026 | 2.8% | 1.8% |
| 2025 | 2.5% | 1.5% |
| 2024 | 3.2% | 2.2% |
| 2023 | 8.7% | 7.7% |
| 2022 | 5.9% | 4.9% |
Your First-Year COLA: Where the Trap Springs
Here's where things get complicated—and where the trap lives.
Unlike future COLAs (which simply add the full percentage to your retirement pay), your first COLA is prorated based on which quarter you retire.
Why First-Year COLA Is Different
The government prorates your first COLA to prevent "double dipping"—receiving both a January military pay raise (while still serving) AND a full December COLA (as a retiree). But this proration creates winners and losers based on retirement timing.
How the Quarterly Calculation Works
Your first COLA depends on which quarter you retire:
| If You Retire In... | Your First COLA Compares... |
|---|---|
| Q1 (Jan-Mar) | Q3 current year vs. Q4 previous year |
| Q2 (Apr-Jun) | Q3 current year vs. Q1 current year |
| Q3 (Jul-Sep) | Q3 current year vs. Q2 current year |
| Q4 (Oct-Dec) | Full COLA (no proration) |
The math gets complex, but the key insight is simple: the difference between the quarters being compared determines your first COLA percentage.
When inflation rises steadily throughout the year, Q1 retirees capture the biggest gap (comparing to Q4 of the prior year). Q3 retirees capture the smallest gap (comparing quarters that are close together).
2026 Quarterly Breakdown: Best and Worst Months
The Best Months to Retire (Ranked)
- March - Historically the best. You get credit for retiring in Q1 (highest first COLA) while also maximizing your time in service.
- December - Full COLA with no proration, plus you start fresh in January.
- February/January - Still Q1, still good, but you lose 1-2 months of active duty pay compared to March.
- June - Best of the Q2 options if you must retire mid-year.
The Worst Months to Retire
- July - The COLA trap is deepest here. You're comparing Q3 to Q2, which typically have similar inflation rates.
- August - Same Q3 problem as July.
- September - Slightly better than July/August but still in the danger zone.
Pro Tip: Last Month of the Quarter
If you must retire in a particular quarter, retire in the last month of that quarter (March, June, September, or December). You'll get the same COLA as someone who retired in the first month but with extra time in service.
Real-World Examples: The Cost of Bad Timing
Example 1: O-6 with 27 Years of Service
Base Scenario:
- Rank: O-6 (Colonel/Captain)
- Years of Service: 27 years
- High-3 Average: $14,500/month
- Retirement Multiplier: 67.5%
- Monthly Retirement Pay: $9,787
| Retirement Month | First COLA % | Monthly After COLA | Annual Difference vs. March |
|---|---|---|---|
| March 2026 | 2.8% | $10,061 | — |
| April 2026 | 2.1% | $9,993 | -$816/year |
| July 2026 | 0.9% | $9,875 | -$2,232/year |
| October 2026 | 2.8% | $10,061 | $0 |
The July retiree loses $2,232 per year compared to the March retiree—permanently.
Example 2: E-7 with 22 Years of Service
Base Scenario:
- Rank: E-7 (Sergeant First Class/Chief Petty Officer)
- Years of Service: 22 years
- High-3 Average: $5,800/month
- Retirement Multiplier: 55%
- Monthly Retirement Pay: $3,190
| Retirement Month | First COLA % | Monthly After COLA | Annual Difference vs. March |
|---|---|---|---|
| March 2026 | 2.8% | $3,279 | — |
| July 2026 | 0.9% | $3,219 | -$720/year |
Even for an enlisted retiree, the COLA trap costs $720 per year.
The Lifetime Impact: How It Compounds
Here's the really painful part: every future COLA is calculated as a percentage of your current retirement pay.
If you start behind, you stay behind—and the gap widens every year.
10-Year Projection: O-6, March vs. July Retirement
| Year | March Retiree | July Retiree | Cumulative Loss |
|---|---|---|---|
| Year 1 | $120,732 | $118,500 | $2,232 |
| Year 5 | $133,847 | $131,373 | $12,370 |
| Year 10 | $153,621 | $150,779 | $28,420 |
| Year 20 | $202,394 | $198,649 | $75,000+ |
| Year 30 | $266,715 | $261,781 | $148,000+ |
Assumes 2.5% average annual COLA. Actual results vary based on inflation.
The July retiree loses over $148,000 in lifetime benefits
That's the cost of retiring four months later—but in the wrong quarter. The March retiree actually retired earlier and comes out ahead by nearly $150,000.
Optimal Retirement Dates for 2026
Best 2026 Retirement Dates
- March 1, 2026 - Maximum first COLA + maximum Q1 service credit
- December 1, 2026 - Full COLA with no proration
- February 1, 2026 - Q1 benefit, slightly less service time
- January 1, 2026 - Q1 benefit, least service time of good options
Worst 2026 Retirement Dates
- July 1, 2026 - Deepest COLA trap
- August 1, 2026 - Still in the trap
- September 1, 2026 - End of Q3, but still problematic
What If You Can't Control Your Date?
Sometimes retirement dates are driven by factors beyond your control—mandatory retirement, medical issues, family situations. If you're stuck with a suboptimal date:
- Talk to your personnel office about any flexibility
- Consider terminal leave to shift your official retirement date
- Weigh the trade-offs—sometimes other factors outweigh the COLA trap
- Plan for it—factor the lower COLA into your retirement budget
Special Warning for REDUX Retirees
If you're under the REDUX retirement system (you took the Career Status Bonus at 15 years), the COLA trap hits you even harder.
REDUX Double Penalty
- Your COLA is already reduced (CPI minus 1%)
- 2026 REDUX COLA: 1.8% vs. 2.8% for High-3/BRS
- The first-year proration applies on top of this reduction
- The gap compounds faster due to the annual 1% COLA penalty
REDUX retirees should be especially careful about timing. The combination of reduced COLA and the COLA trap can significantly erode your retirement purchasing power over time.
Note: At age 62, REDUX retirees receive a one-time adjustment that brings their pay up to what it would have been under High-3. However, after this adjustment, the reduced COLA (CPI minus 1%) resumes.
Action Steps: Avoiding the COLA Trap
Your COLA Trap Avoidance Checklist
- Know your flexibility - Talk to your personnel office about available retirement dates
- Target Q1 or Q4 - March or December are your best bets
- Avoid Q3 - July, August, and September are the trap zone
- Use terminal leave strategically - It can shift your official retirement date
- Calculate the trade-offs - Use our calculator to model different scenarios
- Factor in other income - VA disability, civilian job timing, etc.
- Document your decision - Know why you chose your date
Calculate Your Retirement Pay
Model different retirement dates and see how the COLA trap affects your lifetime earnings.
Try the Calculator →Frequently Asked Questions
Does the COLA trap affect BRS retirees?
Yes. The COLA trap affects all military retirement systems: High-3, BRS (Blended Retirement System), and REDUX. The first-year COLA proration applies regardless of your retirement system.
What if I retire in October, November, or December?
Q4 retirees receive the full COLA with no proration. This is a safe option, though not quite as optimal as March (which captures the largest Q3-to-Q4 comparison gap while maximizing service time).
Can terminal leave help me avoid the COLA trap?
Potentially, yes. Your official retirement date (not your last day of work) determines your COLA calculation. If you have enough terminal leave saved, you might be able to shift from a Q3 retirement date to a Q4 date. Discuss this with your personnel office.
Does this affect my VA disability pay?
No. VA disability compensation COLA is calculated differently and is not subject to the same quarterly proration. All veterans receiving VA disability get the full annual COLA regardless of when their rating was established.
What if inflation is negative (deflation)?
Military retirement COLAs cannot go negative—your pay will never decrease due to deflation. However, you might receive a 0% COLA in years with very low or negative inflation, which doesn't help if you're already behind from the COLA trap.
Is there any way to "make up" for falling into the COLA trap?
Unfortunately, no. Once your first COLA is calculated, there's no mechanism to adjust it later. The lower base becomes permanent, which is why planning ahead is so important.
Related Articles
- How to Calculate Military Retirement Pay in 2026: Step-by-Step Guide
- 2026 Military Retirement & VA Disability Rates
- 20 vs 30 Year Military Retirement: The Complete Decision Framework
- 10 Best States for Military Retirees in 2026
This article is for educational purposes. Individual circumstances vary. Consult with a financial advisor or your military personnel office for personalized guidance on retirement timing.