National Average Wage Index (NAWI)

Key takeaways

• The National Average Wage Index (NAWI) is an annual measure of U.S. wage trends published by the Social Security Administration (SSA).
• SSA uses the NAWI to index historical earnings when calculating Social Security benefits.
• For benefit indexing, an individual’s earnings are adjusted to the average wage level in the year the person turns 60; earnings at age 60 and later are not indexed.
• Policymakers monitor NAWI as one indicator of wage inflation, which can influence monetary policy decisions.

What is the NAWI?

The NAWI summarizes the average annual wage across U.S. workers and reflects wage growth from year to year. SSA publishes the NAWI each year to adjust factors used in the Old-Age, Survivors, and Disability Insurance (OASDI) program and to index individual earnings for benefit calculations.

How the NAWI is calculated

SSA derives the NAWI from reported wages subject to federal income taxes and contributions to certain deferred compensation plans. Practically, the NAWI for a given year moves in line with the percentage change in average wages from the prior year; SSA publishes the historical series of NAWI values going back decades.

Example calculation

To illustrate, the NAWI for 2021 was $60,575.07, which was 8.89% higher than the 2020 NAWI. One way to view the yearly change is:
2021 NAWI ≈ 2020 NAWI × (1 + percentage change in average wages from 2020 to 2021).

Wage indexing for Social Security

Wage indexing adjusts an individual’s historical earnings to reflect overall wage growth so benefits reflect changes in average wages over time. Key points:
* Indexing uses the NAWI for the year the worker turns 60. That NAWI is the reference level.
* For any earnings year earlier than the year the worker turns 60, the indexing factor = NAWI(at age 60) ÷ NAWI(earnings year).
* Earnings in the year the worker turns 60 and later use an indexing factor of 1 (no change).
* After indexing past earnings, SSA applies other steps (such as calculating average indexed monthly earnings and applying the benefit formula) to determine benefits.

Example: If a worker earned $30,000 in 1990 and the NAWI for the year the worker turned 60 (2018 in this example) was $52,145.80 while the 1990 NAWI was $21,027.98, the index factor is 52,145.80 ÷ 21,027.98 ≈ 2.48. The inflation-adjusted 1990 earnings would be about $74,400 ($30,000 × 2.48).

Because indexing depends on the NAWI for the year a person turns 60, the exact indexed earnings and resulting benefit amounts cannot be finalized until that reference year is known.

Why NAWI matters

• Social Security calculations: NAWI is central to converting past wages into present-value terms for benefit computation.
• Policy monitoring: Rapid wage growth (wage-push inflation) can prompt policymakers and the Federal Reserve to consider interest-rate adjustments, which affect the broader economy.
• Inflation insight: NAWI complements other inflation measures by specifically tracking wage trends rather than prices.

Bottom line

The NAWI is a yearly SSA measure of average wages used primarily to index past earnings for Social Security benefit calculations and to signal wage trends that can inform economic policy. Understanding how NAWI and wage indexing work helps explain why historical earnings are adjusted and why final Social Security benefit amounts depend on wage developments up to the year a worker turns 60.