Social Security Wage Indexing: How Your Earnings Are Adjusted
Published: 12/28/2020 · Updated: 1/21/2026
Key Takeaways
- Wage indexing adjusts your past earnings to account for wage growth over time
- The Average Wage Index (AWI) determines how much each year's earnings are adjusted
- Your indexing factors are locked in at age 60 and don't change after that
- Benefits are shown in "today's dollars" so you can compare them to your current expenses
What Is Wage Indexing?
Social Security uses wage indexing to ensure that your benefit reflects changes in the general wage level over your working career. Without indexing, someone who earned $20,000 in 1985 would have those earnings counted the same as someone earning $20,000 today—even though $20,000 had far more purchasing power in 1985.
The indexing process multiplies each year's earnings by an indexing factor. This factor is based on how much average wages have grown since that year. The result is called your indexed earnings.
Example
If you earned $25,000 in 1990 and the indexing factor for that year is 3.03, your indexed earnings would be:
$25,000 × 3.03 = $75,750
This adjusted amount is what counts toward your benefit calculation, making your 1990 earnings comparable to earnings today.
How the Indexing Formula Works
The indexing factor for any year is calculated using a simple formula based on the Average Wage Index (AWI):
For earnings after age 60, the indexing factor is always 1.0 (no adjustment).
The AWI is the average of all wages reported to Social Security in a given year. As of 2024, the AWI was $69,847.
Why Benefits Are Shown in "Today's Dollars"
When you use this calculator or receive a benefit estimate from Social Security, the amounts are shown in "today's dollars". This means we use the most recent available indexing factors rather than estimated future values.
Why this matters: If we used estimated 2035 indexing factors to calculate your benefit, the result would be in "2035 dollars"—inflated amounts that are hard to compare with your current income and expenses. By using today's factors, you can directly compare your estimated benefit to what you spend now.
This is the same approach the Social Security Administration uses when they send you a benefit estimate. They assume you'll continue earning at your current level and apply today's indexing factors, giving you an estimate in today's purchasing power.
What Happens at Age 60?
Your indexing factors are determined—and permanently locked in—in the year you turn 62. However, the formula uses the AWI from the year you turned 60. Why?
The AWI for any given year isn't published until the following fall. Since your benefit calculation must be finalized when you turn 62, the most recent available AWI is from two years prior (when you were 60).
Timeline Example
If you were born in 1965:
- 2025: You turn 60 (AWI for 2025 will be used)
- 2026: AWI for 2025 is published in the fall
- 2027: You turn 62 and your indexing factors are calculated and locked in
Earnings after age 60 receive an indexing factor of 1.0—they're counted at face value with no adjustment. This means your final few years of earnings aren't indexed up for wage growth.
Common Questions
Why doesn't the calculator use my actual eligibility year for indexing factors?
The calculator uses current-year indexing factors to show your benefit in "today's dollars." Using future estimated factors would show inflated dollar amounts that are harder to compare with your current expenses. This is the same approach the Social Security Administration uses in their benefit estimates.
Will my indexed earnings change over time?
Yes. Until you turn 60, your indexed earnings will be recalculated each year using updated Average Wage Index (AWI) values. After age 60, your indexing factors are locked in and won't change.
What is the Average Wage Index (AWI)?
The AWI is the average of all wages reported to Social Security in a given year. It measures how much average wages have grown over time and is used to adjust your historical earnings so they reflect current wage levels.
Why do indexing factors stop at age 60 instead of 62?
The AWI for any year isn't finalized until the following fall. Since your indexing factors must be determined when you turn 62, the most recent finalized AWI available is from two years prior—when you were 60.
Related Guides
- AIME Guide — How indexed earnings are averaged to calculate your Average Indexed Monthly Earnings
- Earnings Cap — The annual limit on earnings subject to Social Security tax and benefit calculations
- Primary Insurance Amount (PIA) — How your AIME is converted to your monthly benefit amount
- Inflation Guide — How wage indexing and COLA adjustments protect your benefit from inflation
Use the SSA.tools calculator to see your indexed earnings based on your actual earnings record.
Additional Resources
- Index Factors for Earnings [ssa.gov]
- Average Wage Index Development [ssa.gov]
- National Average Wage Index [ssa.gov]