Social Security

Latest index
The national average wage index for 2011 is 42,979.61. The index is 3.13 percent higher than the index for 2010.

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 2013, for example, then 2013 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 2013, we would index the person's earnings to the average wage index for 2011, or 42,979.61. We would multiply earnings in a year before 2011 by the ratio of 42,979.61 to the average wage index for that year; we would take earnings in 2011 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

In addition, the Pension Benefit Guaranty Corporation uses the national average wage index to compute flat-rate premiums for PBGC-insured single-employer and multiemployer plans, as required by the Deficit Reduction Act of 2005.

Determination of the National Average Wage Index for 2011
To determine the national average wage index for calendar year 2011, we multiplied the 2010 national average wage index of 41,673.83 by the percentage change in average wages from 2010 to 2011, as measured by annual wage data we tabulated. The wage data are based on wages subject to Federal income taxes and contributions to deferred compensation plans.

The average amounts of wages calculated directly from our data were $39,959.30 and $41,211.36 for 2010 and 2011, respectively. To determine the national average wage index for 2011 at a level that is consistent with the national average wage indexing series for prior years, we multiply the 2010 national average wage index of 41,673.83 by the percentage change in average wages from 2010 to 2011 (based on our tabulated wage data). In other words, the national average wage index for 2011 is 41,673.83 times 41,211.36 divided by 39,959.30, which equals 42,979.61.

The complete average wage indexing series is shown below.