National Average Wage Index

Latest index
The national average wage index for 2008 is 41,334.97.

Indexed earnings used to compute initial benefits
When we compute a person's retirement benefit, we use the national average wage indexing series to index that person's earnings. Such indexation ensures that a worker's future benefits reflect the general rise in the standard of living that occurred during his or her working lifetime.

When indexing an individual's earnings for benefit computation purposes, we must first determine the year of first eligibility for benefits. For retirement, eligibility is at age 62. If a person reaches age 62 in 2010, for example, then 2010 is the person's year of eligibility. We always index an individual's earnings to the average wage level two years prior to the year of first eligibility. Thus, for a person retiring at age 62 in 2010, we would index the person's earnings to the average wage index for 2008, or 41,334.97. We would multiply earnings in a year before 2008 by the ratio of 41,334.97 to the average wage index for that year; we would take earnings in 2008 or later at face value. (See two examples of indexed earnings.)

Indexed program amounts
We use the average wage indexing series to update several amounts that are important to the operation of Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program.

• OASDI contribution and benefit base (also known as the taxable maximum)
• Retirement earnings test exempt amounts
• Formulas for a primary insurance amount and maximum family benefits
• Amount of earnings needed to earn a quarter of coverage ("credit")
• "Old-law" contribution and benefit base (as determined under the law as in effect before the 1977 amendments)
• Coverage thresholds for both domestic employees and election workers
• Substantial gainful activity amounts for disabled beneficiaries and earnings that trigger a trial work period

Determination of the National Average Wage Index for 2008
To determine the national average wage index for calendar year 2008, we increased the 2007 national average wage index of 40,405.48 by the percentage increase in average wages from 2007 to 2008, as measured by annual wage data tabulated by the Social Security Administration (SSA). The wage data tabulated by SSA are based on wages subject to Federal income taxes and contributions to deferred compensation plans.

The average amounts of wages calculated directly from the SSA data were $38,760.95 and $39,652.61 for 2007 and 2008, respectively. To determine the national average wage index for 2008 at a level that is consistent with the national average wage indexing series for prior years, we multiply the 2007 national average wage index of 40,405.48 by the percentage increase in average wages from 2007 to 2008 (based on SSA-tabulated wage data). In other words, the national average wage index for 2008 is 40,405.48 times 39,652.61 divided by 38,760.95, which equals 41,334.97.

The complete average wage indexing series is shown below.