Shutdown? COLA Freeze? What Congress Might Change About Your Retirement

As Congress enters another round of debt ceiling and budget negotiations for fiscal year 2026, many federal employees and retirees are asking:

What does this mean for my pay, my COLA, and my retirement security?

The good news: your core benefits are legally protected. 

But the current political landscape still carries implications for agency operations, pay raises, and retirement timing that you should be aware of—and prepared for.

What’s Happening Now

Congress faces a September 30, 2025 deadline to fund the government for the next fiscal year. If no agreement is reached, we could see a continuing resolution, spending caps, or a partial government shutdown—each with potential ripple effects.

At the same time, several lawmakers are revisiting spending reforms that could impact federal employee compensation or future benefit calculations, including:

• Annual pay raise limits

• Adjustments to COLA formulas

• Possible restructuring of retirement benefits for new hires

None of these proposals are currently law, but they’re part of the broader fiscal debate—and federal workers should keep them on their radar.

Potential Impacts on Federal Employees & Retirees

Federal Pay Raises

While President Biden’s proposed 2.7% pay raise for 2026 remains on the table, Congress could reduce or reject it if budget caps are enforced. A continuing resolution may delay confirmation of any raise until later in the year.

COLAs for Retirees

Cost-of-Living Adjustments (COLAs) are calculated automatically using inflation data. For 2026, the COLA announcement will come in October 2025, based on the CPI-W index.

However, in tight budget years, some lawmakers push to reform the formula—especially for FERS retirees, who already receive a reduced COLA under current rules.

Government Shutdown Risk

In past shutdowns (e.g., 2013, 2018–2019), the following were impacted:

• Delayed processing of retirement applications by OPM

• Furloughs for “non-essential” federal employees

• Uncertainty in paycheck timing (though pay is typically reimbursed after the fact)

If you're planning to retire between October–December 2025, delays are possible—especially with already strained OPM processing times.

Your Action Plan

Here’s what federal employees and retirees can do now to stay financially secure, regardless of political developments:

For Active Employees:

• Review your TSP allocations – Ensure you're balanced based on your risk tolerance and retirement horizon. Consider the G Fund’s stability if volatility increases.

• Max out your 2025 TSP contributions early if possible, to get ahead of market swings.

• Build or revisit your emergency fund – Aim for 1–3 months of essential expenses in liquid savings in case of furlough or disruption.

• Follow budget news from credible sources – Rely on OPM, your agency, and official updates—not social media rumors.

What If You're Retiring in the Next 12 Months?

• Submit retirement paperwork 3–6 months in advance to help mitigate delays from budget-related backlogs.

• Review your annuity estimate now and lock in the timeline that makes the most financial sense before any potential COLA or benefit changes.

• Coordinate with HR early – Some agencies expedite paperwork ahead of fiscal deadlines or shutdown risks.

Bottom Line

While your FERS or CSRS pension, TSP, and FEHB benefits remain protected by law, the timing, processing, and future structure of those benefits can be influenced by how Congress handles the debt ceiling and federal budget.

By staying informed, adjusting your planning timeline, and maintaining a flexible financial buffer, you can weather any short-term political turbulence with long-term retirement confidence.