One of the key questions on which many investors look to their advisors for guidance is "How much money will I need to retire?" One of the key things driving the answer to that question is the percentage of pre retirement spending income people will need in retirement.

In my May column in Investment Executive, I address some of the issues in arriving at an answer to this question - and talk about the competing views on this. There are at least three different points of view on the percentage of income which will be needed - you have the traditionalists at 70%, people like actuary Malcolm Hamilton who argues the number for most Canadians will be closer to 50% and research from Fidelity Investments that suggests the percentage for many investors will be 80% or higher.

In my column on this issue, I quote American author H.L. Mencken: " To every complex problem, there is a solution which is simple, straightforward - and absolutely wrong."

In truth, there is no one number which fits all investors - great news for advisors, since most investors cannot do this calculation on their own and this represents an opportunity for advisors to add real value.

In my research, retirees fall into three stages:

• 1. Early retirement - when they are the most active and venturesome and often spend the most on things like travel
• 2. Mid retirement - here retirees still live independently but may run into health issues and begin to scale back spending
• 3. Late retirement - it's at this stage that retirees need more assistance and may move into retirement and nursing homes, sometimes at substantial cost

To plot the amount which clients will need in retirement, investors need to build bottom up estimates of cash flow needs on a line-by-line basis for each stage. Once done, this estimate needs to be revised on a regular basis. Again, great news for advisors - since this represents an opportunity to add concrete, tangible value.

To read the full column go to http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=44308&IdSection=30&cat=30&BImageCI=1