What Is a Good 401(k) Balance for Baby Boomers?

Baby Boomers are between the ages of 62 and 80, so a good number are retired already, and the rest are likely eligible for Social Security, with retirement approaching fast.

By age 62 or later, ideally, Boomers already have a good amount invested in their retirement plan, as living on Social Security alone isn't really feasible, given that retirement benefits only replace around 40% of pre-retirement income. But what is a good or ideal investment account? How much should the typical Boomer have for their later years?

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Here's how much Boomers should have invested for retirement

There are a lot of different ways you can calculate how much you should have in a retirement plan. However, some of the simplest approaches involve:

• Multiplying your pre-retirement income by 10
• Estimating your income needs from investments and multiplying that number by 25 (assuming you plan to follow the 4% rule).

With the first approach, a Boomer earning $60,000 per year would need a nest egg of $600,000, while someone with a $100,000 annual salary would need $1 million. With the second approach, assuming you wanted to replace 80% of your total income and Social Security was taking care of half that amount, the $60K earner would need their investments to produce $24,000, while the $100K earner would need $40,000. As you can see, by multiplying those numbers by 25, you end up with the same target numbers.

So, in our example, Boomers would need to have these $600,000 or $1 million target amounts in their 401(k) by their chosen retirement date -- which could be 62 or anytime thereafter, depending on exactly how long they want to work.

What's a good amount for Boomers to have invested?

Now, younger Boomers who want to work longer into their 60s can have a little bit less than these amounts and still be OK. In fact, it's a common rule of thumb that you should have eight times your income saved by 60. Older Boomers, though, would want to be pretty close to those numbers so they can make sure they have the financial security they deserve.

And, of course, the oldest who have been retired for a while may have already started the spend-down process and may be seeing their 401(k) balance decline a bit. Of course, it's important at this age not to draw those balances down too fast, which means selecting a safe withdrawal rate so you can keep enough invested to continue earning reasonable returns.

Unfortunately, many Boomers have far less than this saved. The average 401(k) balance among Boomers is $249,300, while the average IRA balance totals $257,002.

For most, these average balances would be too little to live on comfortably, which means those with the average balance may need to work and invest a little longer, or may need to scale down their living costs in their later years because of cash shortfalls.

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