I just got off a call where I was talking to someone who is really concerned about their retirement because they have a pension and they have no idea how it's supposed to change the way they invest and more importantly the way they plan for retirement. So if you are watching this and you have a pension, the way you structure your retirement and think about your investments is going to be significantly different than the person who does not have a pension and the way they think about theirs. Here's the reality of the situation.

When you think about retirement, we typically think about a number. I need to save X number of dollars.

I need to hit a million or two million or whatever that number might be for you. That's the traditional way of thinking about this. And there's some truth to that. But here's where that falls short.

We're not just chasing a net worth because that net worth by itself does not necessarily guarantee us what we actually need. What we actually need in retirement isn't net worth its income. Here's a practical example. When someone talks about saying, oh, I have a million dollars in my portfolio, what does that actually mean? What does it mean that they're going to spend a million dollars per year, of course? No, what it means is there's some portion of that number that they can live on. What we really need to do is mentally account for what does that million dollars translate to when it comes to cash flow? Because in retirement, it's your cash flow that you care about. It's your income that you care about, not the portfolio value, not the net worth. So if you have a million dollars, general rule of thumb might say you can take four to five percent per year of that portfolio. Four to five percent of a portfolio means $40,000 to $50,000 if your portfolio value is $1 million. So don't just look at the net worth. It's the $40,000 to $50,000 that you actually should think about. So that individual has a pension. If you're sitting

here saying, man, I don't have a million dollars. I don't have two million dollars. Or maybe you do, but you also have a pension. Here's how you should think about your pension. If you have a pension coming in and that pension is $5,000 per month, that's $60,000 per year. If I were to use the general 4% framework, that's $60,000 per year of pension income,

it would take a $1.5 million portfolio to create that same level of income using standard 4%

withdrawal rates.

So here's the perspective shift.

If you have a pension, that's wonderful.

And when you think about retirement, think of cash flow.

Don't think of net worth. Your net worth, I've seen far too many people fall into the trap of saying, I'm retiring and I have a net worth of $4 million dollars. Well, that sounds really good. You should be able to create a pretty strong retirement you would think with a $4 million net worth. But then we look at that net worth and it's okay, well, two and a half million of it isn't a primary residence. A million of it isn't another property that's a second home. There's only 500,000 that's actually liquid. That full $4 million is not generating cash flow for you. It's the portion that's liquid. It's the portion that's your actual retirement account that does create cash flow. Now, if that property was a rental property, that would be a different story. But what we care about is cash flow. And to use just an extreme example to finally illustrate this, let's assume you made a $10 million net worth. The entirety of it was in a very precious diamond, a very rare diamond. How valuable is that to you? It's cool to say, it's cool to have that. It's cool to have that and say I have a $10 million but it does you zero practical good when you retire. You can't shave off pieces of this

diamond to but it does you zero practical good when you

retire. You can't shave off pieces of this diamond to use it to redeem for cash to go pay for

groceries and travel and other expenses. That's it. It's illiquid. It's not doing anything for you.

So cash flow is the name of the game. A pension is not going to show up in your net worth statement.

You're not going to look at your balance sheet and see 401 bank accounts,

property, and then pension, but your pension is just as valuable as some of those pieces.

So let's quickly go through how should you incorporate your pension and your overall financial

strategy and then how does that change how you should invest?

And then there are a few nuances,

a few key nuances that you need to understand if you're going to use your pension as your sole income source and retirement. These are really important things to know if you want to avoid being in a bad spot in the future because you did not take care of a couple of these things. You didn't think through a couple of these things. So going to the pension framework, how should you think about this. Well, when you think about your retirement, what you should always start

with is what do you think about this? Well, when you think about your

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