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You can look forward to a fixed 2% annual increase, not to exceed $500, beginning with the second October after your retirement effective date. For example, if your retirement effective date is Dec. 1, 2011, your first increase will occur October 2013; if your annual increase is $480, you will receive $40 more per month.
The 2% increase does not compound, but it does accumulate. In the second full year after retirement, your pension again increases by 2% of your initial pension, not to exceed $500. Following the example above, you would get an additional $40 per month in the second full year, and each year thereafter.