In retirement, your income will likely come from several different sources—Social Security, IRAs, 401(k)s, and brokerage accounts. Making them all work together requires careful coordination. Think of retirement income distribution planning as the art of orchestrating these financial instruments to create a harmonious and sustainable cash flow. Without a cohesive plan, you might face an unnecessarily large tax bill or draw down your assets inefficiently. A thoughtful strategy ensures each piece of your financial puzzle fits together perfectly, providing the steady income you need to live the life you’ve envisioned for yourself.
Key Takeaways
- Create a custom “paycheck” for retirement: Your income plan is the roadmap for turning your savings into a reliable stream of cash. By choosing a deliberate withdrawal strategy, you can cover your living expenses without the stress of guessing how much you can safely spend.
- The order of your withdrawals matters for taxes: A tax-efficient plan involves carefully sequencing withdrawals from your taxable, tax-deferred, and tax-free accounts. This approach helps you manage your tax bracket and preserve more of your nest egg for the long haul.
- Treat your financial plan as a living document: A successful retirement strategy isn’t static; it must be flexible enough to handle market shifts, inflation, and unexpected life events. Reviewing your plan annually ensures it stays aligned with your goals and is built to last.
What Is Retirement Income Distribution Planning?
Think of retirement income distribution planning as creating your own personal “paycheck” from the savings you’ve worked so hard to build. It’s the process of figuring out how to strategically withdraw money from your various retirement accounts to cover your living expenses once you stop working. The goal is to create a sustainable stream of income that lasts throughout your retirement years, all while being mindful of your tax situation. A solid plan gives you a clear roadmap for turning your nest egg into the reliable income you need to live comfortably.
Why You Need a Distribution Plan
When you retire, the regular paychecks stop, but the bills don’t. This is where a distribution plan becomes essential. Without one, you’re essentially guessing how much you can safely spend, which can lead to drawing down your savings too quickly or paying more in taxes than necessary. A well-thought-out plan helps you maintain your desired lifestyle and provides peace of mind, knowing your finances are structured to support you for the long haul. It’s your strategy for managing cash flow, covering everything from daily expenses to unexpected costs, without the stress of uncertainty.
The Building Blocks of Your Strategy
Your distribution strategy should be as unique as you are. It’s built on key factors like your age, lifestyle goals, health, risk tolerance, and the types of retirement accounts you have. Deciding when and how to start taking withdrawals is a major financial decision with long-term consequences. Because every situation is different, many people find it helpful to work with a financial advisor to map out a plan. A professional can help you assess your complete financial picture and build a strategy tailored to your specific needs and goals.
Popular Ways to Withdraw Your Money
While your personal plan will be customized, it helps to understand some common approaches to withdrawing retirement funds. Financial professionals often use these as starting points:
- The 4% Rule: This is a classic guideline where you withdraw 4% of your portfolio in the first year of retirement. In subsequent years, you adjust that dollar amount for inflation. The idea is to establish a consistent withdrawal rate that your portfolio can hopefully sustain over 30 years.
- The Bucket Strategy: With this method, you divide your assets into different “buckets” based on your timeline. Your short-term bucket might hold a few years’ worth of cash for immediate expenses, while your long-term bucket contains growth-oriented investments you won’t touch for many years.
- Proportional Withdrawals: This approach involves taking money from your different accounts—like taxable, tax-deferred, and Roth—in a specific sequence. The goal is to create a tax-efficient withdrawal strategy that can help minimize your overall tax bill throughout retirement.
Follow Key Rules and Regulations
Once you’ve built your retirement savings, the next step is figuring out how to access that money without running into unexpected penalties or a massive tax bill. The government has specific rules for how and when you can withdraw from your retirement accounts. Getting familiar with these guidelines is essential for making your money last and keeping more of it in your pocket. Think of it as learning the rules of the road before you start your journey—it helps you avoid costly mistakes and reach your destination smoothly.
Understand Required Minimum Distributions (RMDs)
After years of letting your retirement funds grow, the IRS eventually requires you to start taking money out. These withdrawals are called Required Minimum Distributions (RMDs), and they apply to most retirement accounts like traditional IRAs and 401(k)s. You generally must take your first RMD by April 1 of the year after you turn 73. This age is set to increase to 75 in 2033 for those born in 1960 or later. Missing an RMD can result in a stiff penalty, so it’s a date you’ll want to mark on your calendar. Following the official RMD rules is a critical part of managing your retirement income.
Know the Cost of Early Withdrawals
It can be tempting to tap into your retirement savings early, but it often comes at a price. If you withdraw money from most retirement plans before you reach age 59 ½, you’ll likely face a 10% IRS penalty on top of regular income tax. Some plans have different rules; for example, 457(b) plans often don’t have this 10% penalty. On the other hand, SIMPLE IRAs carry an even higher 25% penalty for withdrawals made within the first two years of opening the account. Understanding the specific penalties for early distributions can help you avoid making a costly decision and keep your retirement strategy on track.
Plan for Your Tax Bill
Taxes don’t disappear in retirement; they just change. Most of your withdrawals from pre-tax accounts like traditional IRAs or 401(k)s will be taxed as regular income. In contrast, qualified distributions from Roth accounts are generally tax-free, since you paid taxes on the money before you contributed it. To manage your tax liability, consider the order of your withdrawals. Many financial professionals suggest tapping your taxable brokerage accounts first. This allows your tax-advantaged accounts to continue growing. Next, you might withdraw from tax-deferred accounts before RMDs kick in to smooth out your tax bill over time. This kind of thoughtful investment solution can make a significant difference in your net retirement income.
Choose Your Distribution Strategy
Once you’ve built your retirement savings, the next step is figuring out how to draw it down. There isn’t a single correct way to do this; the right approach depends on your financial situation, risk tolerance, and retirement goals. Thinking through your options helps you create a reliable income stream that supports your lifestyle. Below are a few established methods for structuring your retirement withdrawals, each with its own approach to managing your money for the long haul.
The Bucket Strategy
The bucket strategy is a way to mentally organize your savings to align with your spending timeline. You divide your assets into three different “buckets.” The first bucket holds cash and cash equivalents for your immediate needs, covering about one to three years of living expenses. The second bucket contains a balanced mix of investments for your medium-term goals, spanning the next four to ten years. The third bucket is for long-term growth, holding stocks and other assets you won’t need to touch for at least ten years. When you need income, you pull from Bucket 1. As it empties, you refill it from Bucket 2, which helps you avoid selling your long-term investments during a market downturn.
Dynamic Spending
If you prefer a more flexible approach, dynamic spending might be a good fit. Also known as the guardrails strategy, this method allows you to adjust your annual withdrawals based on how the market is performing. You start with a target withdrawal rate but set upper and lower limits—the “guardrails”—to guide your decisions. When your portfolio performs well, you can take out a little more. If the market is down, you pull back and withdraw less. This adaptability can help your portfolio last longer by reducing withdrawals during unfavorable market conditions, giving your investments more time to recover.
Tax-Efficient Withdrawal Sequencing
The order in which you tap your accounts can have a significant impact on your tax bill. A common approach to tax-efficient withdrawals is to draw from your taxable brokerage accounts first. This allows your tax-deferred and tax-free accounts to continue growing without creating a taxable event. Once your taxable accounts are depleted, you move on to tax-deferred accounts, like a traditional IRA or 401(k). You save your tax-free accounts, such as a Roth IRA, for last. Since withdrawals from Roth accounts are tax-free, leaving them to grow the longest can provide a valuable source of tax-free income later in retirement.
The 4% Rule (and Its Alternatives)
The 4% rule is a popular guideline for retirement withdrawals. It suggests you can withdraw 4% of your portfolio’s value in your first year of retirement and then adjust that dollar amount for inflation each following year. For example, if you have a $1 million portfolio, you’d withdraw $40,000 in year one. If inflation is 3%, you’d withdraw $41,200 in year two. While it provides a simple framework, it’s not a set-it-and-forget-it rule. Some people find it too rigid, so they explore alternative retirement withdrawal rules. One alternative is to increase your withdrawal amount by a fixed 2% each year to help your spending power keep up with rising costs.
Manage Your Different Income Streams
Once you retire, your income won’t come from a single paycheck. Instead, you’ll likely draw from several sources you’ve built over the years, like Social Security, retirement accounts, and personal investments. The key is to orchestrate these streams so they work together, providing you with a steady flow of cash while being as tax-efficient as possible. Thinking through how and when to tap each source is a critical part of a successful retirement plan. It helps you cover your expenses, manage your tax bill, and make your money last for the long haul.
A well-designed distribution plan brings order to this process, giving you clarity and confidence as you move into this new chapter. Without a clear strategy, you might withdraw money inefficiently, pay more in taxes than necessary, or even risk running out of funds too soon. Each income source has its own rules, tax implications, and optimal timing. For example, the decision of when to take Social Security can affect your lifetime income, while the order you pull from retirement accounts can significantly alter your tax burden. By creating a cohesive plan, you can make these different streams work in harmony, supporting the retirement lifestyle you’ve envisioned.
Get the Most from Social Security
One of the most powerful levers you can pull in retirement is deciding when to start taking Social Security benefits. While you can begin as early as age 62, waiting can have a significant payoff. For every year you delay past your full retirement age (up to age 70), your monthly benefit increases by about 8%. This strategy, known as delayed retirement credits, can substantially increase your income for life. Of course, this isn’t the right move for everyone. You’ll need to consider your health, your other income sources, and your immediate financial needs. You can find your full retirement age on the Social Security Administration’s website to start modeling different scenarios.
Withdraw from Retirement Accounts
The order in which you tap your retirement accounts can have a big impact on your tax bill. A common approach is to start by withdrawing from your taxable brokerage accounts first. This allows your tax-deferred accounts, like a traditional IRA or 401(k), to continue growing without immediate tax consequences. Once you’ve used your taxable funds, you can move on to these tax-deferred accounts. It’s wise to plan these withdrawals strategically before you reach the age for Required Minimum Distributions (RMDs), which typically start at age 73. Proactive planning can help you manage your income and avoid a larger-than-expected tax bill down the road.
Use Investments for Income
Beyond your standard retirement accounts, other investments can be structured to provide a reliable income stream. Annuities, for example, are contracts with insurance companies that can offer a predictable series of payments, almost like a personal pension. This can be a great way to create a stable floor of income to cover essential expenses like housing and healthcare. However, it’s important to balance predictability with flexibility. Committing all of your assets to an annuity could leave you without access to cash for unexpected emergencies or opportunities. Thinking of annuities as just one piece of your overall investment portfolio ensures you maintain a healthy mix of assets.
Rebalance Your Portfolio
Your retirement plan isn’t something you can set and forget. Just as your life evolves, your financial strategy needs to adapt, too. It’s a good practice to review your portfolio and withdrawal strategy at least once a year. This annual check-in allows you to rebalance your investments, ensuring your asset allocation still aligns with your risk tolerance and long-term goals. Since you no longer have a regular paycheck, this review process is your new way of making sure your income plan can cover both daily costs and larger purchases. Regular adjustments help keep your plan on track and responsive to both market changes and shifts in your personal life. Working with financial professionals can make this process much smoother.
Plan for a Tax-Efficient Retirement
Creating a steady income stream in retirement is only half the battle; the other half is keeping as much of it as you can. A tax-efficient withdrawal strategy can make a significant difference in how long your money lasts. By being thoughtful about where you pull money from and when, you can manage your tax liability and preserve more of your hard-earned savings for your future. It’s not just about what you have, but how you use it. A smart approach to taxes can feel like getting a raise in retirement. Focusing on a few key areas can help you build a more resilient and efficient income plan that supports your goals for years to come.
Choose the Right Accounts to Tap First
The order in which you withdraw from your retirement accounts matters—a lot. A common approach is to tap your accounts in order of their tax treatment. You can start by taking money from your taxable accounts, like a standard brokerage account. This allows your tax-advantaged accounts to continue growing without creating a tax bill. Next, you can move to tax-deferred accounts, such as a traditional IRA or 401(k). Finally, it’s often wise to save your tax-free accounts, like a Roth IRA, for last. This sequence helps you manage taxes throughout retirement and leaves your most tax-friendly assets available for later in life, when your expenses or tax bracket might be higher.
Keep an Eye on Your Tax Bracket
Your tax bracket doesn’t disappear when you stop working. Withdrawals from tax-deferred accounts are taxed as ordinary income, which means a large withdrawal could easily push you into a higher tax bracket. This is especially important when you reach age 73 and Required Minimum Distributions (RMDs) begin. These mandatory withdrawals can create a significant tax event. To get ahead of this, you might consider taking smaller distributions from your IRA or 401(k) in your 60s, before RMDs start. This can help you smooth out your taxable income over several years, potentially keeping you in a lower bracket overall.
Give to Charity, Save on Taxes
If you are charitably inclined, a Qualified Charitable Distribution (QCD) is a powerful tool for tax planning. If you’re 70½ or older, you can donate up to $105,000 per year directly from your IRA to an eligible charity. This move comes with a triple benefit: the donation is not considered taxable income, it can satisfy your annual RMD requirement, and it allows you to support causes you care about. Because the money goes directly to the charity, it doesn’t increase your adjusted gross income (AGI), which can help you avoid higher Medicare premiums and other income-related costs.
Think About Your Estate Plan
Your retirement income strategy is deeply connected to your estate plan. For high-net-worth individuals, financial planning involves more than just funding your own retirement—it’s also about creating a legacy. The decisions you make about which accounts to use and when can have a major impact on the assets you leave to your heirs. For example, leaving a Roth IRA can provide tax-free income to your beneficiaries, while a traditional IRA will come with a tax bill. Meticulously planning your retirement income helps ensure you can support your desired lifestyle while also structuring a thoughtful and tax-efficient transfer of wealth for the next generation.
Find the Right Tools and Resources
Use Financial Planning Software
Modern financial planning software helps you see the big picture by modeling complex scenarios and visualizing how decisions impact your goals. These platforms go beyond simple spreadsheets. As Envestnet notes, the right tools can help translate your lifestyle objectives into concrete financial strategies. This technology empowers you to test assumptions about market returns, inflation, and spending, making your retirement plan more robust. It’s a powerful way to see a clear path forward and build a strategy you can trust.
Run the Numbers with Retirement Calculators
When you need a quick snapshot, retirement calculators are incredibly useful. These tools can help you get a handle on how much you can safely withdraw or how long your savings might last. For instance, some tools can help you estimate your spending potential in retirement, which is a great starting point for your budget. While they don’t replace a comprehensive financial plan, calculators are perfect for running initial numbers and understanding the basic mechanics of your strategy. They are an accessible way to stay engaged.
Work with a Professional Advisor
The complexity of managing wealth in retirement often calls for expert guidance. A qualified financial advisor can help you build a sustainable withdrawal strategy that considers your specific goals, income needs, and investment portfolio. They bring an experienced and holistic perspective that software alone can’t provide. An advisor helps you handle intricate tax laws, manage market volatility, and adjust your plan as your life changes. This partnership is about having a trusted resource dedicated to helping you achieve your vision for retirement with confidence.
Explore Income Planning Tools
High-net-worth individuals often face unique tax situations that make planning more complex. Specialized income planning tools are designed to address these challenges. They allow you to meticulously plan your retirement income and expenses, ensuring you have the resources to support your desired lifestyle. These tools can model how different income streams—from pensions to investment dividends—interact and affect your overall tax liability. This detailed analysis helps you create a cohesive and tax-efficient distribution plan that aligns all pieces of your financial puzzle.
Protect Your Retirement Income
Once your distribution plan is in motion, the goal is to make your income last. That means protecting it from common risks like market volatility, unexpected expenses, and simply living a longer, healthier life than you might have anticipated. A resilient retirement plan isn’t just about how much you withdraw; it’s about creating a strategy that can withstand challenges and adapt over time. By planning for these variables, you can build a more durable income stream for the long haul.
Prepare for Market Ups and Downs
The market will always have its cycles of growth and decline. The key is to manage your savings so you don’t have to sell assets at a loss to cover living expenses. This is why having a clear approach to your finances is so important—you don’t want to outlive your money. By understanding common retirement withdrawal strategies, you can create a plan that anticipates market shifts. This might involve holding a cash reserve or relying on less volatile assets during downturns, allowing your equity investments time to recover.
Plan for a Long Life
Retirement can easily span 20 to 30 years, and your financial plan needs to reflect that reality. Life expectancy continues to increase, with the average 65-year-old man living to 84 and a woman to nearly 87. Planning for a long life means structuring your portfolio for sustained growth while generating income. It also involves thinking about how your spending needs might change over time, from active early years to later years when healthcare becomes a more significant expense. Your plan should be built to last for decades, not just a few years.
Factor in Healthcare Costs
Healthcare is one of the largest and most unpredictable expenses in retirement. It’s essential to plan ahead for these costs, which can be substantial. If you have a high-deductible health plan, one effective tool is a Health Savings Account (HSA). Contributions to an HSA are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. By setting aside dedicated funds for healthcare, you can prevent medical bills from derailing your overall retirement income strategy and protect your other investments.
Adjust Your Withdrawal Rate When Needed
Sticking to a rigid withdrawal rule, like taking out the same percentage every year, can be risky. A more flexible approach often works better. Instead of a fixed plan, it’s wise to adjust how much you withdraw based on your portfolio’s performance. In years when the market is down, you might take out a little less to give your investments a chance to rebound. When your portfolio performs well, you can afford to spend more. This dynamic method helps your money last longer and gives you more control over your financial future.
Create an Income Stream That Lasts
Once you’ve designed your retirement income strategy, the work isn’t over. The goal is to create a durable stream of income that can support you for decades, which requires a proactive and adaptable approach. A successful plan isn’t something you set up once and forget about; it’s a living strategy that evolves with you and the world around you. Your financial needs will change, markets will fluctuate, and your personal goals may shift. A static plan simply can’t keep up.
Think of it less like a rigid blueprint and more like a dynamic roadmap. It needs to be strong enough to withstand market shifts and personal life changes, yet flexible enough to let you enjoy the retirement you’ve worked so hard for. This means building a plan that can bend without breaking, whether you’re facing an unexpected expense or a change in the economic climate. By focusing on a few key principles—flexibility, smart allocation, and regular reviews—you can build a financial foundation that truly supports your long-term goals. This ongoing attention to your plan is what transforms a good strategy into a great one, helping you move forward with confidence, knowing your income plan is built to endure whatever comes your way.
Build Flexibility into Your Plan
When you stop receiving a regular paycheck, you need a new way to cover everything from daily expenses to larger, unexpected costs. That’s why a flexible income plan is so important. Life is unpredictable, and your strategy should be able to handle a surprise medical bill, a necessary home repair, or even a spontaneous travel opportunity without throwing your entire financial future off course.
Building in this adaptability might mean setting aside a portion of your assets in a more liquid account or creating a plan that allows for variable withdrawals. The key is to have options. A rigid plan can break under pressure, but a flexible one allows you to adjust to new circumstances, ensuring you can meet your needs while keeping your long-term retirement withdrawal strategies on track.
Allocate Your Portfolio for Income
To generate consistent income, your portfolio needs to be structured for it. This goes beyond simply owning a mix of stocks and bonds; it’s about carefully allocating your assets to produce the cash flow you need to support your lifestyle. For high-net-worth individuals, this requires meticulous planning to ensure your resources can sustain your desired standard of living throughout retirement.
A well-diversified portfolio can help manage risk while providing income through dividends, interest, and capital gains. Working with a financial advisor is essential here. An advisor can guide you through the complexities of financial planning for high-net-worth individuals, helping you make decisions that align your portfolio with your income needs and set you up for a successful retirement.
Review and Adjust Your Plan Regularly
Your retirement plan shouldn’t be collecting dust on a shelf. It’s crucial to review it regularly—at least once a year—to make sure it still aligns with your life. Your personal circumstances, financial needs, and even tax laws can change over time. What worked perfectly one year might need adjustments the next.
Regularly checking your withdrawal plan allows you to adapt to shifting market conditions or changes in your spending. An annual review is a great opportunity to assess your portfolio’s performance, rebalance if necessary, and confirm that you’re still on the right path. This ongoing process helps you stay in control and ensures you can effectively manage income distribution for years to come.
Avoid These Common Planning Mistakes
A well-crafted retirement plan is about more than just saving; it’s about thoughtfully spending down your assets so they last a lifetime. Even the most diligent savers can see their hard-earned nest egg shrink faster than expected if they fall into a few common traps. Understanding these potential pitfalls—from picking an unsuitable withdrawal method to letting market swings dictate your decisions—is the first step toward building a more resilient and effective income strategy. By planning ahead for taxes, healthcare, and inflation, you can create a distribution plan that supports your lifestyle and gives you confidence, no matter what the future holds.
Choosing the Wrong Withdrawal Strategy
It’s tempting to think you can simply pull money from your accounts as needed, but this approach can cause serious problems down the road. A formal retirement withdrawal strategy is a clear plan for how you’ll access your savings to cover living expenses. Without one, you risk depleting your funds too quickly or facing an unexpected tax burden. The right strategy for you will depend on your total assets, income needs, and risk tolerance, so it’s essential to choose a method that aligns with your personal financial picture.
Overlooking Your Tax Bill
Taxes don’t disappear when you retire. In fact, they can take a significant bite out of your income if you aren’t careful about which accounts you draw from and when. A tax-smart approach can make a huge difference in how long your money lasts. To help manage income distribution efficiently, many financial professionals suggest a specific sequence. You generally start by taking money from taxable brokerage accounts, then move to tax-deferred accounts like traditional IRAs or 401(k)s, saving your tax-free Roth accounts for last.
Underestimating Healthcare Costs
Healthcare is one of the largest and most unpredictable expenses in retirement. Many people assume Medicare will cover everything, but it doesn’t account for long-term care, dental, vision, or many out-of-pocket costs. For high-net-worth individuals, managing these expenses is a crucial component of wealth preservation. Failing to incorporate realistic healthcare estimates into your plan can force you to pull more from your portfolio than you intended. These are important considerations for your overall financial planning strategies to ensure your health needs are met without compromising your financial stability.
Reacting to Market Volatility
Watching the market dip can be unsettling, and the impulse to sell investments to protect your capital is understandable. However, making emotional decisions based on short-term volatility can be one of the most damaging mistakes an investor can make. Selling during a downturn locks in your losses and prevents you from benefiting when the market recovers. A better approach is to build flexibility into your plan. Some people use dynamic withdrawals, where they take out a bit less during down years and a bit more when the market is strong.
Forgetting About Inflation
A dollar today won’t buy as much 10 or 20 years from now. That’s inflation at work, and it’s a silent threat to your retirement income. If your withdrawal plan provides a fixed amount each year, your purchasing power will slowly erode over time. A successful strategy must account for the rising cost of living. Some popular retirement withdrawal rules, like the 4% rule, include built-in adjustments for inflation, suggesting you increase your withdrawal amount slightly each year to keep pace with your expenses.
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Frequently Asked Questions
How do I choose the right withdrawal strategy for me? There isn’t a single correct answer because the right strategy is deeply personal. The best approach for you depends on your comfort with risk, your other sources of income like Social Security or pensions, and your overall tax picture. Think of it as finding a system that fits your life, not forcing your life to fit a system. A good starting point is to consider if you prefer a consistent, predictable withdrawal amount or a more flexible method that adjusts with the market.
Is the 4% rule still a reliable guideline? The 4% rule is a helpful benchmark for starting the conversation, but it’s not a set-it-and-forget-it solution. It was developed in a different economic environment, and today’s market conditions and longer life expectancies mean it might be too aggressive for some or too conservative for others. It’s best to view it as a reference point rather than a strict rule. Your personal withdrawal rate should be based on your specific portfolio, spending needs, and how you feel about market fluctuations.
What’s the first step I should take to make my withdrawals more tax-efficient? The most practical first step is to simply take inventory of your accounts and understand how each one is taxed. Make a list of what you have in taxable accounts (like a brokerage account), tax-deferred accounts (like a traditional IRA or 401(k)), and tax-free accounts (like a Roth IRA). Just knowing the tax treatment of each account is the foundation for creating a smart withdrawal sequence that can help you manage your tax bill over the long run.
My income needs will probably change in retirement. How can my plan account for that? A solid retirement plan should be built with flexibility in mind from day one. Life isn’t static, and your plan shouldn’t be either. You can account for changing needs by using a more dynamic withdrawal strategy that allows you to take out more in some years and less in others. It also helps to think about your retirement in phases—the active, early years may involve more spending on travel, while later years might see higher healthcare costs. Planning for these shifts helps you create a strategy that can adapt with you.
Do I really need a formal distribution plan if I have significant savings? Yes, absolutely. In fact, when you have more assets, a thoughtful distribution plan becomes even more critical. The goal shifts from simply not running out of money to efficiently managing your wealth, minimizing taxes, and planning for your legacy. A formal plan brings structure to complex financial situations, helping you make strategic decisions about which assets to use and when, which can have a major impact on your net income and the inheritance you leave behind.