Indexed Earnings

When the Social Security Administration (SSA) hands out Social Security benefits, they don’t work in nominal wages...they work in real wages. Indexed earnings is the calculation the SSA does to adjust the wages you made for inflation, which is used to determine the amount of benefits you’ll collect.

Which is good, since inflation erodes wages. For instance, if your last job was in the 1980s and the SSA didn’t adjust for inflation, your Social Security payout would be pretty measly based off of 1980s nominal wages.

Besides being used for calculating retirement payouts, indexed earnings are also used for calculating payouts for those on Social Security Disability...for those who can’t work and are eligible.