SRS101 – How The Supplementary Retirement Scheme Will Give You Your Golden Years And Wallet A Level Up

I’m sure most of us have imagined what life during retirement would be like, and it probably looks something like this: travelling the world with your partner, picking up new hobbies, starting passion projects, and the list goes on. Sorry to burst your bubble, but unless you’ve saved up a more-than-significant amount, such a lifestyle is going to be difficult to maintain without a steady flow of income. It’s not impossible though; here’s how the Supplementary Retirement Scheme can give you great tax savings, and in turn help you boost your golden years.

What is an SRS account?

The Supplementary Retirement Scheme (SRS) is part of the Singapore Government’s multi-pronged approach to ensuring our financial needs are met, even when we’re old and grey. We all know about the existence of our CPF savings, but if you want a more cushy lifestyle during retirement, your CPF might not be enough. CPF savings are involuntary and are aimed at ensuring your basic needs such as housing and medical care are met. However, if you want a more cushy lifestyle, relying solely on your CPF savings might not be such a great idea. The SRS is a voluntary scheme that complements the CPF to encourage Singaporeans to save more for retirement. Because it is 100% voluntary, you can choose the amount you’d like to put into your SRS account (subject to a cap).

Benefits of having an SRS account

Besides being like a piggy bank for retirement, the major benefit of the SRS is income tax relief. For every dollar contributed into your SRS account, you get a dollar off your income tax, capped at $80,000. Currently, you can open a SRS account with DBS, UOB, and OCBC. You can deposit any amount whenever you want into your account or get your employer to contribute part of your salary on your behalf. The process is simple – deposit your cash like you would into any other account. No extra fancy steps! Do note that the SRS contribution cap for Singapore Citizens and Permanent Residents is $15,300, and $35,700 for foreigners.

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While income tax relief might seem attractive, the SRS does not benefit everyone equally due to Singapore’s progressive tax system. Those with a higher income will be taxed at a higher rate, and will naturally enjoy greater savings with a reduction of their assessable income. Thus, it is important to assess your own financial situation and calculate if contributing to a SRS account will be beneficial to you. If you are unsure of what tax reliefs and rebates you qualify for, refer to IRAS’ tax calculator page.
Here’s an illustration that would give you an idea on how much you could potentially save in taxes:
Table of Tax Savings from SRS

Tips and tricks on withdrawing funds from your SRS account

While you can technically withdraw funds from your SRS account any time, withdrawals before the statutory retirement age (62, at time of writing) will be subjected to a 5% withdrawal penalty. Also, 100% of the amount withdrawn will be subjected to tax. However, this withdrawal flexibility will come in useful if life takes an unexpected turn and you need some liquidity. But if all goes well, you’ll only be taxed on 50% of the withdrawal amount if you make a withdrawal after the retirement age. Based on Singapore’s income tax system, withdrawing $40,000 a year would be the wisest choice, as only $20,000 will be taxed. These immediate savings are provided you do not have any form of income. With a SRS account, you have ten years to make withdrawals from your first withdrawal. Any remaining amount in your account will be considered a lump sum withdrawal, and 50% of that amount will be taxed.

Make sure your funds grow

But if you still have funds in your account, you need to know what to do with them, and it’s not letting them be idle. Unfortunately, it seems like many SRS members are doing exactly that. Data from the Finance Ministry show that 34% or about $2.34 billion, of SRS funds, lie idle as cash – that’s enough to purchase about 8,603 4-room BTO flats. If you didn’t already know, SRS accounts have an incredibly low fixed interest rate of 0.05%. This means letting your cash sit in the account might result in your savings being eroded by inflation.
There are a range of investment products you can choose from to grow your SRS funds. They are:
  • Bonds
  • Singapore Government Securities/Singapore Savings Bonds
  • Fixed Deposits
  • Foreign Currency Fixed Deposits
  • Shares
  • Single-Premium Insurance
  • Unit Trusts
The gains these investments make will automatically go into your SRS account. Until you make a withdrawal, they will be exempted from being taxed.
As with any investment, comes risk. If you need a comparison of the SRS approved products and how to go about making those investments, leave your contact below and our preferred advisors will be in touch with you shortly!

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