Your pension COLA stops at 3%. Seattle inflation didn’t.

Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.

The screen share that gives it away

Neil pulls up his DCP account on our Zoom call and I can read the whole thing in about four seconds.
He's 53. Water utility operations manager for a city on the west side, 24 years in PERS 2, planning to walk at 58. Between the DCP and an old IRA he's got a little over $800,000.

About two thirds of the DCP sits in the Savings Pool Fund.

He tells me that's deliberate. The pension is the plan, the DCP is the cushion, and he'd rather the cushion not bounce around.

I've heard a version of that from a lot of people and I don't think it's a dumb sentence. It's just resting on a number he's never looked up.

Nobody reads the cap

Neil knows he gets a COLA. Almost everybody does.

The cap is the part he hasn't read.

If you're in a DRS pension plan, your annual adjustment is capped at 3%¹. The percentage comes from the Consumer Price Index for the greater Seattle area, and state law spells out which index gets used and how it's measured¹. That holds whether you retire in Spokane or Vancouver. Seattle's index sets your raise.

DRS deserves credit for one feature here. When the index climbs more than 3%, the excess isn't lost. It gets banked and paid out in later years when inflation lands under 3%¹. A run of hot years followed by quiet ones can even itself out.

That's better than a hard cap with nothing behind it, but it's still a ceiling.

Twenty out of thirty-six

The Office of the State Actuary publishes that Seattle CPI-W series going back decades². I pulled the annual changes from 1990 through 2025 and counted them.

Prices rose more than 3% in 20 of those 36 years².

Across the full stretch the index averaged right around 3% a year². Which is the cap, on the nose.

Your pension's inflation protection was built to land on the long-run average and stop there.

Cash went backwards in Washington

Aswath Damodaran at NYU keeps a public dataset of annual returns on stocks, Treasury bonds and Treasury bills running back to 1928³. I lined his numbers up against the same Seattle CPI-W series the state uses to set your COLA.

Say you put $10,000 into Treasury bills at the beginning of 1990. Cash, essentially. By the end of 2025 it had grown to roughly $26,700³.

In 1990 purchasing power, that's about $9,300²ˏ³.

Thirty-six years of perfect safety, and it finished below where it started.

The same $10,000 in the S&P 500 grew to about $388,000, or roughly $136,000 in 1990 dollars²ˏ³. Stretch the window and the gap turns absurd. One hundred dollars in the S&P 500 at the start of 1928 was worth about $1.16 million at the end of 2025. The same hundred in Treasury bills came to about $2,600³.

That leaves one account to do the growing

Social Security adjusts for inflation too⁴. Between the pension and Social Security, Neil has a stack of income engineered to hold its purchasing power steady.

Holding steady isn't growing.

Growth has to come from the third bucket. For Neil that's the DCP and the IRA, which is the bucket sitting in cash.

There's a second thing the pension is doing that gets missed. Neil already owns a large, guaranteed income stream that adjusts for inflation every year. In portfolio terms that does the same job a heavy bond allocation does. He's conservative before he picks a single fund.

Piling cash on top of that buys the same protection twice, using money that has 30 years of work ahead of it.

He has options inside the plan. The DCP build-and-monitor lineup runs from the Savings Pool Fund and the Washington State Bond Fund on the stable side through U.S. Large Cap, Global Equity, U.S. Small Cap Value and Emerging Markets index funds, all selected by the Washington State Investment Board⁵.

Why I still keep years of it in a “War Chest”

None of this means Neil should dump everything into stocks.

The approach I use is a war chest. We generally put approximately 5 years of planned portfolio withdrawals held in high-quality short-term bonds for retirees. That money has one job, which is making sure a bad year never forces a sale.

Everything past the war chest gets invested for growth.

Where to start

Log in and find out what your DCP is invested in. A lot of people are guessing, and plenty of balances are still sitting in whatever got picked twelve years ago.

Then write down what you expect to pull from your portfolio in each of your first five years of retirement. Not a percentage. A dollar figure.

That's your war chest. Everything past it is the money that has to clear 3%.

Neil didn't move a dollar on our call. He went and read the COLA page.

​That's usually where it starts.

-Seth Deal