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Social Security Mailbox:

Earnings Limit to Rise in 2012

What happens to the benefits withheld?

En español | Q. Will the Social Security annual earnings limit change in 2012?

A. Yes, it will. In 2011, the earnings limit is $14,160. In 2012, it will go up to $14,640.

The earnings limit affects those between 62 and full retirement age who receive Social Security benefits and continue to work. If you earn more than the annual limit, $1 in benefits is withheld for every $2 earned above the limit.

See also: How to maximize your Social Security benefits?

At the start of the year in which you'll reach full retirement age, a different formula kicks in: In 2011, $1 in benefits is being withheld for every $3 of earnings over $37,680. In 2012, that figure will rise to $38,880.

But Social Security counts your income only until your birthday month. After that, all the limits go away and you are free to earn as much as you please without penalty for the rest of your life.

rise in earnings limit for social security, graph with chalk on blackboard

Will the Social Security annual earnings limit change in 2012? — Tooga/Getty Images

Q. What happens to the benefits that Social Security takes away from me when I earn more than the annual limit — the so-called earnings penalty? Will I ever get that money back?

A. It's not lost forever. It will start to flow back to you when you reach full retirement age — the Social Security Administration will end the withholding and will recalculate your original benefit upward to credit you for money that was subtracted from your check. In addition, as long as you continue to work and receive benefits, Social Security will check your earnings every year to see whether you're due a higher benefit. Generally you will be if your latest work year ranks among the highest-earning 35 years of your life.

Also of interest: Calculate when to claim benefits. >>

Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

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