The National Average Wage Index (NAWI) is an important economic indicator used by the Social Security Administration (SSA) to measure wage growth among American workers and to make adjustments to Social Security benefits and contributions. The NAWI is determined annually and serves as a benchmark for inflation, allowing the SSA to make informed decisions when adjusting benefits and contributions for Social Security.

The NAWI is based on an analysis of wage tax data compiled by the IRS and other payroll information collected from employers. All annual wages reported by employers are considered in determining the NAWI, not just wages earned by workers age 62 or older. This means that the current NAWI reflects the most recently available wages across the American economy.

The NAWI is used primarily to make adjustments to Social Security benefits, determining how much money retirees receive each month. When a person turns age 62, their wages are indexed to the NAWI of that year. This indexing is important as it reflects inflation, ensuring that retirees receive the same purchasing power as when they first retired.

The NAWI is not only used to adjust benefits, but also to set contribution ceilings for Social Security taxes. When a worker’s wages exceed the eligible contribution limit for the NAWI of that year, the SSA requires that their employer withhold the additional amount from their wages. This ensures the funds necessary for Social Security are kept in line with inflation.

Overall, the National Average Wage Index (NAWI) provides an important metric for tracking wage growth in the American economy and serves as a vital tool for the SSA when determining Social Security benefits and contributions. The NAWI is used as a method of indexing wages to inflation and ensuring that retirees continue to receive purchasing power as the economy changes.