Why SRS is my instrument of choice for retirement in Singapore
Among the many financial concerns shared by my clients, a recurring one revolves around tax payments and the underutilization of the Supplementary Retirement Scheme (SRS) as a reliable wealth accumulation tool. SRS often remains misconstrued, much like CPF Life, voluntary contributions, and various other government policies.
The SRS is hailed as a blessing by those well-acquainted with its workings, yet dubbed a dubious scheme by the uninitiated, primarily due to its withdrawal taxation and penalties for premature access.
Aside from the fact that I do not contribute to CPFOA and CPFSA as a self-employed person and hence cannot fully rely on CPFOA for retirement, no other retirement strategy offers the same benefits as the SRS. I can only speak for Singaporeans who believe in the benefits of retiring in their 60s, are prudent in their finances and wish to retire comfortably and SUSTAINABLY in their retirement years.
1. Maximizing Tax Benefits has the same results as Profit
In the realm of Economics 101, taxes are deemed a deadweight loss. Reducing tax liabilities essentially translates to being compensated by the taxman for staying invested. While some may see this solely as tax relief, I consider this a 7-20% return over my “investment” in the SRS over a span of less than 6 months (from Dec to Apr). Whatever i chose to do with the SRS funds after that, be it investing or buying a product, is a bonus.
Before embarking on SRS, I considered my overall income and existing reliefs, including CPF contributions and Qualifying Child relief, which significantly impacts my taxable income.
- In general, only those with TAXABLE INCOME about 40k should consider SRS (abv 40k you save 7 cents for every SRS dollar, above 80k you save 11.5 cents for every SRS$, above 120k you save 15 cents for every SRS$, that’s 7%, 11.5% and 15% gain)
A common mistake by SRS rookies is that they don’t factor in their existing reliefs, which can go up to 80k. If liquidity is your first concern in SRS contributions, consider these FIRST to gauge your taxable income.
IRAS provides a handy excel sheet to estimate your taxes. If you do not know what to fill in, refer to your previous year tax documents.
2. Strategic Tax-Free or Tax-Minimal Withdrawal
You can avoid paying taxes on your SRS withdrawals with some careful planning. There’s no free lunch on the world, but if you really plan carefully, SRS can really be a free lunch.
Navigating SRS withdrawals demands meticulous planning to minimize tax burdens but can also ensure that SRS is a good complement to your CPF-Life or annuities. Withdrawals post the statutory retirement age of 63 are subjected to a 50% concessionary tax rate. Understanding this provision is critical for devising tax-efficient withdrawal strategies.
If i am a 55yo now looking to retire at 65yo, a CPF Life standard plan loaded with FRS (do ERS if you can afford to) will give $1620 monthly. I am able to double my living expenses with SRS withdrawals of $1667 monthly for the next 10 years and still pay no taxes.
Now that’s a free lunch if you ask me.
3. A piggy bank you can break IF you REALLY need to
Unlike buying long term endowment plans, or a property, a SRS retirement fund invested in a well diversified portfolio that gives superior long term returns and provides for liquidity is the best of both worlds.
I personally had SRS monies disbursed back to my bank account (minus a 5% penalty but i still benefited from a 17% tax reduction the year before) in 2021 when times were harder. No additional taxes were paid, well because times were harder. I couldn’t say for certain that I would have that money for a rainy day if it was in liquid cash. I would probably have used the cash to buy a new car or motorcycle.
The SRS, while serving as a robust financial safety net, maintains a balance by penalizing premature withdrawals, aligning with its core purpose. However, certain situations, such as death, medical incapacity, or financial bankruptcy, warrant exemptions or reduced penalties.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek unbiased financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Published By:
Shannon Choo
In my previous corporate career, I was a Client account manager and led an operations team. In 2019, I joined a top Insurer to challenge myself and learn the ropes at roadshows. Eventually I embarked on a full-fledged career in Financial Planning by joining an Independent Financial Advisory, which allows me to fully act in my client’s best interests with the full suite of financial instruments at my disposal.
I hold professional certifications in commercial and personal General Insurance, all levels of health and life insurance, investment instruments such as Mutual funds, and Islamic estate planning and Will Writing.
Today, my clients come from all walks of life. Senior corporate executives seeking early retirement, young adults buying their first policies for their families, and Human Resource managers looking to insure their employees.
I provide fee-based services to advise on all aspects of financial planning, as well as manage long-term investment and insurance portfolios for clients.
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