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 2011, for example, then 2011 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 2011, we would index the person's earnings to the average wage index for 2009, or 40,711.61. We would multiply earnings in a year before 2009 by the ratio of 40,711.61 to the average wage index for that year; we would take earnings in 2009 or later at face value.