What is wage indexing?

Wage indexing is a concept that generally refers to the method of adjusting the earnings of an individual for inflation, particularly in the context of Social Security calculations. This adjustment is crucial for ensuring that benefits reflect the real value of earnings over time.

In the context of Social Security, particularly when discussing how average indexed monthly earnings are calculated, wage indexing involves taking an individual's earnings and adjusting them to account for the changes in wage levels across the economy. This process typically applies until the age of 59, as earnings after this age may not be subject to the same indexing adjustments due to different rules in calculating benefits.

Understanding wage indexing is important because it affects the eventual retirement benefits an individual may receive, making it a critical component of Social Security calculations.