Maaike le Grand interviews Sharada Sundar

 

Why should young WBFN members attend the April seminar on Pension Planning?

Pension, isn’t that something automatic, that you don’t need to take specific actions for? Retirement age is still so far away, especially when you are around 30 years old.

The above attitude is based on a very common misunderstanding of what a pension is and how it works. That’s why Mosaic decided to ask Sharada Sundar, Manager of the World Bank Group Pension Administration, who will be the speaker at the upcoming WBFN Information Seminar on the Pension Plan on April 24, to share with our readers the insights she has gained over the years. She has been a part of the Pension Administration team for the past 15 years, and based on her in-depth knowledge of the Pension Plan, she can give us many reasons why it would indeed not be too early at all to start paying attention to these matters at a relatively young age. The benefits over the long run can be huge, when a little attention is paid early on.

Planning a Better Future for Your Family

“First of all,” said Sharada, “the seminar gives spouses an opportunity to better understand what the Pension Plan entails. When you understand it as a family, it enables you to take the right measures and plan for your future. It also helps you push your working spouses, who are often very busy and engaged with their work, to take the time to pay attention to their own personal situation, and to make those important decisions together.”

A Common Misconception

“A very common misconception among people is the assumption that as long as they are part of a pension plan, they should have sufficient income in retirement. It is important to remember that retirement is supported by both pension income and personal savings. Pension income is directly related to the number of years that you have been a part of the pension plan. If you realize beforehand, that this formula means that you will end up with 50% of your salary as pension, you can see the need to augment your pension income with personal savings and plan accordingly.”

A Sizeable Impact

“The World Bank Group Staff Retirement Plan (the Plan) consists of a defined benefit, cash balance and voluntary savings component. While the defined benefit portion of the plan is a formula based benefit, the cash balance and voluntary savings component of the plan have several investment options. It is up to each member to make decisions about investments. For that, you need to understand the different investment options offered and what the consequences of the different choices may mean over the long run. When you make the right use of the choices at hand, it may have a sizeable impact on your retirement nest egg.”

“Attending this seminar will help you understand how benefits are computed, the form of the benefits based on various eligibility criteria and currency of the benefit payments. It will also help you understand the various investment options available in the Plan. The seminar will also touch upon the value of saving young and the power of compounding interest. The longer you wait, the more dollars you will need to save for the same income need in retirement. Pension Administration offers seminars on various topics including investment education. Please visit the pension website for more information on these seminars.”

“When you start saving at a younger age and continue to do so over the years, the compounded effects of these savings will be considerably more than when you start at age 50 when you finally realize that retirement is approaching. At that age, it may be too late to make substantial progress in savings. For example, you are 30 years old and you decide to invest $10,000 in an account which gives an annual return of 5%. If this money is left in that account until age 62 this account would have grown to more than $47,500. However, the same invested at age 50 will only grow to $17,950. Alternatively, you will need $26,500 at age 50 to have a similar lump sum of more than $47,500 at age 62. As you can see, the longer you wait, the more dollars you will need to save for the same income need in retirement.”

Tragic Events Do Happen…

Spouses who are in marital difficulties should make themselves aware of what it means financially if this marriage goes bust. There is some help available within the WBG, and Sharada encourages spouses in such situations to call the Pension Administration to better understand the Plan requirements for a spousal support payment. Again, here nothing is automatic. There is a need for a spousal support court order which is acceptable to the Plan.

Another aspect that members are often in denial about is the tragic event of death. We all know that it is part of life, but often fail to take the necessary actions like setting up a will, or proper estate planning. We forget to make it known to the survivors where essential financial information can be found, what the different accounts are, where the will is, and that adds significantly to the difficulties in an otherwise already stressful situation.

When you take the smart way, and very early on in the process take part in investment education seminars, and start to inform yourself about the different building blocks of the pension plan, you can start to charter a way ahead. You can set different milestones along the way, but you need to plan for your future. It will give you considerable peace of mind to know well ahead what you can expect at a later age.

WBFN is very grateful to Sharada, who so generously shares with us her insights on this complicated topic and we encourage you all to attend her seminar!

NOTE: Another excellent way to inform yourself on these topics, and to get motivated to indeed get your financial matters more in order is the upcoming Financial Literacy Courses taught by Cary Clark, one of WBFN’s most gifted teachers. To your surprise you will discover that talking about money can not only be fun, it can also empower you, and open up new and interesting conversations with your partner on the common goals you want to set for the future of your family. Often it happens that the busy staff is relieved to see that the spouse takes part as well in dealing with these important matters. Register today and mark the dates in your calendar for February 21 and 22. Her classes have been an inspiration for countless members!