For many retirees, part-time work isn’t about “going back to work” so much as it’s about adding flexibility. A few days a week can help fund travel, smooth cash flow, keep skills sharp, or simply add structure and social connection. For others, it’s a bridge that can cover expenses while delaying Social Security or reduce pressure on investments early in retirement.

The opportunity is real, but so are the ripple effects. Even modest work income can affect taxes, Social Security, Medicare premiums, health coverage, and long-term portfolio strategy. The best outcomes typically occur when part-time income is integrated into a coordinated retirement plan, rather than being treated as an isolated paycheck.

Below is a practical guide for Minnesota retirees thinking about working part-time, or already doing it, who want fewer surprises and better results.

The Quick-Start Checklist: What Part-Time Work Changes First

Before getting deep into strategy, it helps to understand where the pressure points tend to show up:

Net pay vs. gross pay: Wages don’t exist in a vacuum. They stack on top of Social Security payments, pensions, investment income, and withdrawals from retirement accounts. Most people think about the gross income from a part-time job rather than the net income after taxes.
Social Security impact: Earnings can temporarily reduce Social Security benefits if you’re under full retirement age, but not forever. Those over full retirement age will see no impact on benefits if they start part-time work.
Tax impact: Income from part-time work is subject to federal and Minnesota income taxes and potentially self-employment taxes depending on your situation. This can lead to gaps in withholding, penalties for underpayment, and surprise tax bills.
Medicare impact: Higher income today can mean higher Medicare premiums later through IRMAA – Income- Related Monthly Adjustment Amount.
Health coverage (especially pre-65): Having part-time employment can change your health care options and costs – especially pre-age 65. Those who can access employer coverage can reduce costs, while those who must obtain marketplace coverage may see premiums go up depending on eligibility for subsidies.
Portfolio impact: Paychecks can reduce withdrawals, shift Roth conversion plans, or alter required minimum distribution strategies.
Benefits and tradeoffs: Part-time work can have benefits such as schedule flexibility, access to health care, vision or dental benefits, and retirement plan access.

Think of this checklist as the “early warning system” for what deserves modeling before you say yes to the job.

Start With the “Why”: Defining the Role Part-Time Work Plays

The most successful part-time work starts with a clear plan.

Clarify the objective. Is the goal to cover essentials, fund discretionary spending, protect the portfolio early in retirement, or delay Social Security? Different goals lead to different income targets and tax strategies.
Set an income range—not a single number. A range gives you room to manage tax brackets, Social Security thresholds, and health coverage rules without constantly breaking the plan. For example, earning between $20,000 and $28,000 may work better than targeting exactly $25,000.
Decide what matters most. Is flexibility more important than predictability? Do you want meaning and engagement, or maximum income per hour?
Identify constraints that shape the decision. Energy, caregiving responsibilities, seasonal preferences, travel plans, and health considerations all shape what’s realistic and sustainable.

Social Security: How Working Can Change Your Benefit Picture

Social Security is often the first concern retirees raise when considering work—and for good reason.

If you work before full retirement age (FRA) and are claiming benefits, then the earnings test may temporarily reduce your benefits once your income crosses a set threshold. For 2026, that threshold is $24,480, and your benefit will be reduced $1 for every $2 you earn above the limit. However, this is not a permanent loss as benefits withheld before FRA are recalculated later, increasing future payments.

After FRA, there’s no earnings limit, and you will receive your full benefits regardless of work income. Currently, for those born in 1960 and later, the full retirement age is 67.

Given these differences, it’s important to have a clear strategy for claiming your benefits that coordinates with your part-time work:

Haven’t claimed Social Security benefits yet? Part-time work may support delaying benefits to avoid the earnings test and increase lifetime income.
Already claimed Social Security benefits? Income may or may not matter, depending on your age and earnings level.

Work income can increase how much of your Social Security payments are taxable for a couple. This is because the percentage of benefits included in the tax calculation depends on your other income. Increasing income with part-time work might lead to more of your benefits being taxed and a higher tax bill – read more on our taxation of Social Security blog. It can also affect spousal and survivor benefit strategies when one person works longer.

Taxes: Federal and Minnesota Implications You’ll Want to Model

Taxes are where many “small” jobs create big surprises.

Income stacking basics: Your wages layer on top of Social Security, pensions, interest, dividends, and retirement account withdrawals. The last dollar earned often faces the highest marginal rate, which means that even a smaller amount of work income may face higher tax liability.
Minnesota-specific concerns: State withholding on part-time wages is often too low by default in retirement when other income sources are involved. You may need to adjust your withholding to plan for this, leading to a reduced net paycheck.
Managing tax brackets intentionally: Sometimes it makes sense to cap part-time work earnings to stay below certain tax bracket thresholds and reduce your overall tax rate. Other times, earning more is still worthwhile because it reduces portfolio withdrawals or improves long-term tax outcomes.
Withholding and estimated payments: Retirees often need a different system than they used during their main career. Paycheck withholding alone rarely covers the full tax picture, given other income sources such as pensions or IRA withdrawals. If that is the case for you, it’s important to plan for some quarterly estimated tax payments to take care of the gap.
Increasing Social Security benefit taxation: Even if your tax bracket doesn’t change, part-time income can increase how much of Social Security is taxable, effectively raising your marginal rate. See the previous section for more details. In Minnesota, there is a state-specific Social Security benefits subtraction that can be very favorable if you stay under the income threshold. For more information, read our related blog post.

Medicare and Health Coverage: The Often-Missed Ripple Effects

Healthcare planning is where part-time work quietly reshapes retirement.

If you’re 65+ and on Medicare

Higher income years due to IRA distributions or Roth conversions can trigger income-related monthly adjustment amounts (IRMAA), increasing Part B and Part D premiums—often two years later. These IRMAA amounts won’t apply forever, but rather 2 years later for one year. For more information on this topic, check out our post on IRMAA.

If you transition directly from employer insurance to Medicare at retirement and your income will reduce due to retirement, there is a form you can submit to signal that you had a life-changing event and to have Medicare base your premium on your new income going forward. You can find the Form SSA-44 here.

If you’re under 65

Part-time work may offer employer coverage and could be substantially less expensive than marketplace coverage. If you get a part-time job, it’s important to find out how you might be able to qualify for employer health insurance pre-65, and if that might be worth it to consider for your plan.

If you need to get a plan on the marketplace, be aware that income changes can affect subsidy eligibility, sometimes sharply. It’s important to work with your financial advisor and/or tax preparer to be aware of any income thresholds to avoid.

HSA considerations

If you’re eligible, contribution timing must be coordinated carefully with Medicare enrollment rules. Once you are on Medicare, you are no longer eligible to contribute pre-tax dollars to your health savings account.

Portfolio and Retirement Accounts: Using Work Income to Improve the Plan

Incorporating work income into your cash flow

Your new wages are a great tool to reduce portfolio withdrawals (taking money out of your IRA or 401k) early on in retirement, and can extend the life of your retirement accounts.

What should these wages be used for? For many retirees, these wages are best used to help pay for regular expenses. If your wage income is more than needed for expenses, given your other income sources, you can consider building up your cash reserves, investing the funds for long-term use, or paying down debt.

Other Considerations

Withdrawal sequencing: Part-time income might best be used to replace withdrawals from retirement accounts in some years. You can also consider strategic withdrawals in other years depending on your overall income profile.
Roth conversion planning: Extra income will increase your current tax bracket and may reduce room for Roth conversions at a certain tax rate. For some, the additional income will help cover taxes during Roth conversions and keep them at lower tax rates than after Required Minimum Distributions start.
Required Minimum Distributions (RMDs): Once RMDs begin, adding extra income can significantly increase your tax rate. If you are still working at the RMD age, it’s important to consider options to reduce taxable income, like considering Qualified Charitable Distributions (QCDs).
If your work income is not being used to fund your regular expenses, it’s important to have a regular system for investing the funds so that you do not accumulate too much cash.

Employment Structure Matters: W-2, 1099, or Seasonal Work

How you’re paid matters almost as much as how much you earn.

W-2 employment

If you are a W-2 employee, this allows you to set up Federal and state tax withholding, have payroll taxes handled automatically, and typically have a more consistent, predictable income.

You may also be able to participate in your employer’s retirement plan if one is offered. If so, it’s important to understand your options and the rules of the plan before considering making contributions.

Self-employment or 1099 contractor work

If you work as a consultant or contractor, this often allows for more flexibility but also more complexity when it comes to taxes. You will not have any Federal, state, or payroll tax withholding and will be subject to self-employment tax. It’s important to keep good records of your income and track your expenses when it comes to tax preparation time. You will also want to leave some of your work income aside to use for quarterly estimated tax payments, given that you will not have tax withholding.

Minnesota-Specific Planning Considerations to Keep on Your Radar

Minnesota retirees face a few unique wrinkles when it comes to work income and state taxes:

Minnesota has a progressive income tax structure, meaning that higher income is taxed at higher levels. Be aware that if you are adding income through part-time work at retirement, this income may move you into a new tax bracket, and you may be taxed at a higher rate overall.
Default state tax withholding often misses the mark in retirement. If you are earning part-time wages, your withholding may be too low when you consider your other retirement income sources.
Some Minnesota state programs are based on your annual income. One example is a property tax refund for residents who have less than $142,490 of income. Part-time work may cause you to cross this threshold and lose your refund.
If you have a Minnesota state public pension, this income may interact with your part-time wages, causing your overall tax rate to go up substantially. Some pension systems have return-to-work rules that require careful review to avoid a potential penalty.

A Practical Framework That Holds Up

Map all income sources by month, not just annually. Part-time work may vary by month and be less consistent than other income sources.
Identify sensitive zones that shift with income, including tax brackets, benefits and insurance premiums.
Choose an earnings range and work cadence that respects those zones and keeps you at your preferred income level.
Set up a tax process that helps to cover changes to your tax liability by either using withholding through W-2 employment or quarterly estimated payments for self-employment.
Decide in advance where each paycheck goes: retirement spending, saving in cash reserves, investing, or debt payoff.
Plan for annual review points instead of constantly tinkering.

Common Mistakes That Cost Retirees Money

Many retirees treat part-time income as “extra” without modeling how it could impact taxes and benefits. This can lead to accidentally over-earning before Full Retirement Age—where Social Security rules penalize early claimers—or triggering higher Medicare premiums through IRMAA without realizing it until the bills arrive. Others under-withhold taxes and face surprise payments at filing, or lose access to valuable pre-65 health coverage and subsidies due to unmanaged income increases. Often, lifestyle spending rises with the new earnings instead of strengthening long-term financial security.

Working Part-Time in Retirement FAQs

1. Will part-time work reduce my Social Security benefit?

Sometimes temporarily, if you are claiming before full retirement age, and depending on your earnings, but reductions aren’t permanent. See the Social Security section above for more details.

2. Can part-time income increase how much of my Social Security is taxed?

Yes, often through income stacking and stealth marginal rates. See the Taxes section above for more details.

Could earning more now increase my Medicare premiums later? Yes—premium adjustments through IRMAA often lag income by two years. See the Medicare section above for more details.

3. If I'm under 65, how does part-time income affect my health coverage options?

It can change subsidy eligibility if you are insured through the marketplace, or it may simplify things by allowing you to get coverage through your employer.

4. Should I adjust withholding or make estimated payments once I start working again?

In most cases, you will want to consider adjusting your withholding (as a W-2 employee) or set up quarterly estimated tax payments (if self-employed).

5. Is W-2 work or self-employment usually better for retirees from a planning standpoint?

It depends on which aspect of planning is most important to you: taxes, flexibility, benefits, or administrative tolerance.

How Our Team Helps Minnesota Retirees Turn Part-Time Work Into a Smarter Plan

At Clerestory Advisors, we’ve helped many clients consider the role of part-time work in retirement. Together, we build a clear income range, withholding approach, and reinvestment strategy—then coordinate with your tax professional when needed—so your part-time work supports the retirement you want, not just the one that looks good on paper. If you’re ready to create a plan that gives you clarity and confidence, I invite you to schedule a complimentary consultation call. Together, we’ll map out your path to a secure and enjoyable retirement right here in Minnesota.

Sources:
https://www.ssa.gov/benefits/retirement/planner/whileworking.html#h1 https://www.ssa.gov/benefits/retirement/planner/whileworking.html#h2
https://www.revenue.state.mn.us/property-tax-deferral-senior-citizens
https://www.revenue.stte.mn.us/property-tax-refund

Liz Alf is the Principal of Clerestory Advisors and fee-only CERTIFIED FINANCIAL PLANNERTM located in Minneapolis, MN. She is a member of the National Association of Personal Financial Advisors (NAPFA), the Fee Only Network and Wealthtender. She enjoys serving clients with on-going financial planning and investment management services.