Many Feds count on their annual raises to help keep up with rising costs. While the process can bring some uncertainty each year, it appears that the 2026 federal employee pay raise is shaping up to be particularly underwhelming.
Despite a significantly higher Office of Personnel Management (OPM) recommendation, the White House has quietly submitted a 1% across-the-board raise to Congress. This marks the smallest increase since 2021, which was also the final year of President Trump’s first term.
There is one notable exception. Certain law enforcement officers may receive a 3.8% raise, in line with the military increase. However, eligibility will be determined by OPM and individual agencies.
Wondering how this might play out for you? Let’s take a closer look at the details.
OPM Recommendations for 2026
Each year, OPM submits a pay adjustment recommendation based on a formula set by the Federal Employees Pay Comparability Act (FEPCA). The purpose of this recommendation is to align federal salaries with those in the private sector, particularly in areas where agencies struggle to hire and retain talent.
For 2026, the FEPCA formula called for a 3.3% across-the-board raise, along with an average locality pay adjustment of 18.88%. In some metro areas, this would work out to a total pay increase of over 20%.
However, this formula is rarely implemented in full. Under current law, the president can submit an alternative pay plan that overrides the FEPCA recommendation. Locality pay is designed to help ensure raises keep pace with the cost of living, making this year’s difference between the recommendation and alternative pay plan particularly significant for those living in high-cost areas.
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The President’s Alternative Pay Plan
On August 30, 2025, President Trump formally submitted his alternative pay plan, citing fiscal responsibility and reducing federal spending. The higher law enforcement raise was justified as an effort to recruit and retain talent in critical law enforcement roles.
To put this plan in context, raises over the past several years were 2.7% in 2022, 4.6% in 2023, 5.2% in 2024, and 2% in 2025.
Planning Implications for Federal Employees
For most Feds, annual raises are unlikely to keep pace with inflation or private-sector wage growth. This year’s proposal makes it clear that it’s best not to build financial plans around expected annual increases. That said, these steps may help you make the most of your annual raises:
- Review your budget with fresh numbers: Rising housing, childcare, and commuting costs could outpace a small raise, potentially requiring adjustments.
- Revisit your TSP contributions: A bump in pay may allow you to increase savings without feeling the pinch.
- Consider the impact on your high-3 calculation: Even small raises increase the average of your highest three earning years, which affects your pension payments.
Strategically approaching each pay raise, regardless of size, can help strengthen your broader financial plan.
What’s Next in the Process?
OPM will now work with federal agencies to determine which law enforcement categories qualify for the 3.8% raise. Congress has the authority to intervene, but typically defers to the President’s plan. Historically, the final raise lands between OPM’s recommendation and the President’s budget. However, given the size of this year’s gap, the outcome appears less likely.
For now, Feds should watch for updates as the fall budget process unfolds. If you would like help reviewing how a modest raise may impact your financial plan, reach out to the team at Serving Those Who Serve at [email protected] to schedule a personal review.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
