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By Christine Benz | 05-03-2010 04:43 AM

How to Know Your Retirement Cash Flow Needs

The 80% income-replacement rule doesn't apply to everyone's retirement lifestyle, says planner Erin Botsford.

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Christine Benz: Hi, I'm Christine Benz for Morningstar. I'm here at the Investment News Retirement Income Summit, and I'm joined today by Erin Botsford. Erin is the president and CEO of the Botsford Group, a financial advisory firm. Erin, thanks so much for being here.

Erin Botsford: Thanks for having me.

Benz: So you talk a lot, Erin, about this concept of Lifestyle Driven Investing. Tell us what that means to you, and to your clients, when you're helping them to manage their portfolios.

Botsford: Well, I'd be happy to. Lifestyle Driven Investing, we come at it from a premise of, everybody starts off, when they're young and they're going to get a job, they have a dream. And the dream is to create what I call their preferred lifestyle, a preferred future.

Well, when it comes down to it, their preferred future requires cash flow. And so what we just said, we call it lifestyle. And so, every single person, what we do is we work with them and we say, OK, if you retired tomorrow and sometimes tomorrow is really 10 or 15 years from now, what does it take to sustain the lifestyle that you've worked so hard to achieve? And so there's a number there, and the interesting thing about it is it's different for every single person.

You can't really say, well, it's going to be 80% of what your existing cash flow is, because you really take it down to, how are you going to spend your time in retirement? What are you going to be doing? Do you want to take the kids on a vacation? And each person's answer to that is different.

The other thing that's different about it is that it changes. The first couple of years of retirement, maybe you're on vacation and then you're traveling, and finally, after five or six years of that, you say, I'm worn out, I don't want to do this, I want to stay at home.

Benz: Or the health isn't so good.

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