Have you been SRS-ly thinking about it?

What is SRS?

As the term “Supplementary” says it, this is a non-compulsory, voluntary scheme to help Individuals (Yes! Singaporeans and Non- Singaporeans working in SG) to plan for their retirement and at the same time enjoy Tax Relief. This is a separate scheme from our CPF scheme. Investment returns are not taxable before withdrawal and only 50% of the withdrawal from SRS are taxable at retirement.

Table below on Tax Savings for Singaporeans if you contribute the full $15,300 per annum

Table below on Tax Savings for Foreigners if you contribute the full $37,500 per annum

Why should I consider SRS?

The SRS top up will directly reduce your chargeable income. In the table above, if a tax payer is earning $200,000 per annum, by topping up the full $15,300 to his SRS account, he will save $2,754 in his payable income tax, while being able to also plan for his retirement years, enabling him to squirrel up reserves for his golden years.

Who should consider SRS and When should I start contributing to SRS?

Anyone above the age of 18, and is looking to plan for his retirement and yet enjoy tax relief at the same time should consider this. It also benefits those in the higher income brackets, with more cost savings in their taxes should they contribute to their SRS.

It is important to note that there is a personal income tax relief cap of $80,000. As SRS contributions cannot be refunded, it is best to ensure that you are not already above the relief cap; otherwise you may not enjoy the tax relief and have to have the funds locked up till 62; withdrawals cannot be made before 62 otherwise you will have to pay a 5% withdrawal penalty unless given special reasons and, hence it is important to ensure that you are ready to lock up the funds over the longer term.

SRS is not for everyone and it is completely voluntary. Should you decide to opt out of contributing the following year, it is completely fine and there will be no penalties for that. However, do note it is not an ordinary account where withdrawals are permissible, you have to be ready to stay SRS-ed till 62.

The Withdrawal Process

The golden age to unlock these funds is from age 62 onwards. It is important to note that whilst you can withdraw the funds from SRS, taking out the full sums at one go, it may not be the most cost-saving way.

During SRS withdrawal period, 50% of the withdrawable income after age 62 is taxable and you have 10 years to slowly withdraw from the account (this is to tie in with government’s initiative to have it as a supplementary retirement plan alongside our CPF Life); currently, incomes of $20,000 and below is not taxable, hence if you are planning for withdrawal, $40,000 is a good sum to look at to enjoy tax-free withdrawals—however, this is contingent that at point of withdrawal, you are not drawing an income either from employment or property. You can also choose to allow your investments to sit in SRS and choose a later retirement age to withdraw the monies so that you can truly enjoy a good retirement when you have decided to have that golden handshake!

Where may I open an SRS account?

For the uninitiated, you can always open an SRS account online with the local banks—DBS, UOB or OCBC. That is the swiftest way to open an account.

How can I get started on SRS investments savings and planning?

Now that you have opened the account and funded before 31 December this year, take note of the interest rates you are getting in the SRS. Currently, the interest rate for SRS is 0.05%p.a. and that is not going to help you plan for a robust retirement. A typical inflation of 2% will eat away the 0.05% gains per annum, thus, there are many ways to improve your yields in that SRS account!

Depending on your Risk appetite and Objectives, here are some of the tools you can use to optimise your returns:

1. Invest in shares and retail bonds listed on Singapore Exchange (SGX)

2. Place them into SRS- approved savings plans/ endowment plans with a financial planner

3. Invest in diversified Unit Trusts that are SRS-approved- either monthly or via lump sum with a financial planner

4. Place the funds into retirement plans that are SRS qualified—most insurers would have plans that are single-premium and SRS approved.

Why should I do something about my SRS funds?

If you were to top up $15,300 (Singaporean/ PR) or $35,700 (foreigner) per annum into your SRS account and leave it there at 0.05%p.a over 10 years, you will only get $153,421.38 and $357,990 respectively. Now, that money is not working hard enough to "supplement" your retirement.

However, if you were to invest it in a fund that yields you 6% per annum for the next 10 years with the same amount of top up, you will get $213,766.13 (Singaporean/ PR) or $498,800 (Foreigner) respectively.

This is the power of Compounding!

Unsure where to get started and what is the best strategy? Leave a message at Grow With Belle and I will be happy to journey with you and take it SRS-ly with you!