Federal and military retirees and people getting Social Security checks are due a cost of living adjustment in January expected to be a minimum of 4.2 percent.

The multibillion-dollar increase will go to one in every five Americans. Because of the high concentration of former federal workers and military personnel here, the January increase will go to nearly 400,000 retirees and Social Security beneficiaries in the Washington-Baltimore area.

The exact amount of the 1988 increase will be determined by how much, or how little, living costs rise this month. Raises for civil service and military retirees and Social Security recipients are based on the rise in the Consumer Price Index from the third quarter (July, August, September) of the previous year.

In August, when the CPI countdown started, the rise in the cost of living for July indicated a 3.7 percent raise next year. But new figures showing an increase in August living costs now indicate a 4.2 percent raise, with one month left in the countdown. September's cost of living index will be announced in late October.

Federal workers in the Washington area, whose average pay is $32,000, are due a January raise that has nothing to do with the cost of living adjustment provided to retirees and Social Security recipients. The president has proposed a 2 percent raise and Congress is working on a 3 percent proposal. The exact figure won't be known, or official, until final congressional action is completed.

The raises for federal retirees -- whose average pension is just more than $13,000 per year -- are automatic.AFGE Loan

The American Federation of State, County and Municipal Employees gave a short-term $1.1 million loan to the American Federation of Government Employees so that the union's health plan could remain in the federal health program.

Earlier, the Office of Personnel Management had told AFGE it couldn't take part in next year's health program unless it repaid more than a million dollars in reserve insurance funds to the government.

AFGE says that AFSCME President Gerald McEntee read about the union's plight and offered the loan. AFSCME got the money out of certificates of deposit. AFGE says it has agreed to repay the full amount plus interest as soon as a loan it is seeking on its new building is approved.

An AFGE spokeswoman said Friday that the loan is "without any strings . . . there were no side deals, just one union helping another."

Catastrophic Illness

The Senate is working on a plan to provide catastrophic health insurance protection under Medicare without forcing federal and private sector retirees who already have the coverage to pay double premiums for duplicative benefits.

Under the bill passed by the House, premiums for the coverage would be based on each individual's taxable income. That would mean higher premiums for retirees whose pensions are taxed compared with premiums for persons who get most of their income from untaxed Social Security benefits. Sen. David H. Pryor's (D-Ark.) federal services subcommittee is looking for a way to give the protection to those who need it while shielding government retirees from paying double premiums for duplicative benefits.