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Assuming your new iMac is 10.8, you are being asked for a different reason in my estimation. See next paragraph for details. To answer your question, I think you want to use the same volume -- that would keep all your old stuff in your backup. If you choose a new partition/volume the first thing that is going to happen is a full backup to the new partition - that will take some time and space. Also I am not sure how you will get access to that file you deleted last week before the OS upgrade.

Starting with 10.8, TM supports multiple volumes for backup. (Don't know how many, but at least 3) In my case, I have two physically different drives - call them #1 and #2. #1 was my previous TM backup drive. When I connected #2 and entered TM Preferences, there is an sort of window that lists the currently used TM drive(s) and a grayed "Add or Remove Backup Disk…" icon. Clic on the Add/Remove and you can assign any connected Volume as a TM drive. Once you do that, you are asked the Do you want to replace or use both question. I did want to add a second TM drive, so I said Use Both. At this point, External Drive #1 is a nice green icon on my Desktop. Drive #2 is orange. Actual backups alternate between both drives -- #1 on even clock hours and #2 on odd numbered clock hours.

The first backup on #2 was a full backup - just like I was using TM for the very first time. In addition to the icon colors (which I view as a bug), there is another unexpected situation. At any point in time, when I enter TM, the only backups I find in the Star Wars system are those made on which ever drive made the most recent backup. Example at 9:00am TM makes a backup to drive #2. At 9:30am if I enter TM, the only backups I can see are those on #2 which were made at 9am, 7am, 5am, etc. If I want a backup that was made at say 6am, I either have to wait until the next backup happens or else enter the #1 drive via Finder -- In Finder I can copy any file just as I would between to folders in my Home Drive.

I am not sure I like this at all. I am going to continue using this double drive system for a few weeks just to cover myself. Then in my care I will just dump #1 drive and revert to a single backup drive.

Gordon
Atlantt
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