4 Ways to Make the Most of Your SRS Account
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The Supplementary Retirement Scheme (SRS) helps you prepare for retirement, unlike CPF funds that you can use to buy property or pay for medical expenses. So, it’s important that you get the most out of your SRS account.
If you’re not currently contributing to an SRS account, find out whether you should have an SRS bank account.
But if you do have one, here's how you can get even more out of it to maximise your long-term wealth.
Adopt a long-term mindset when contributing to your SRS account
If you're a citizen or PR, once you start contributing to your SRS account, you won't be able to withdraw those funds before the statutory retirement age of 62. For foreigners, you won't be able to withdraw for 10 years from your first deposit. And if you do withdraw before then, you'll have to pay a 5% penalty plus any applicable taxes on the withdrawals.
So, you should should treat your SRS account as though it’s completely locked up. To ensure you won't need to tap into those funds, only contibute if you have sufficient liquidity. That is, you should have an emergency fund of at least 9-12 months of living expenses between your saving accounts and low-risk, liquid investments before locking any of your funds away in an SRS account.
Contribute the maximum amount to your SRS account
Singaporeans and PRs can contribute up to $15,300 SGD per year to their SRS accounts, and foreigners can contribute up to $35,700 SGD per year. These contributions are deducted from each year's tax bill. So, if you have enough savings, contribute the maximum amount possible to your SRS account each tax year. This way, you can strike a balance of liquidity and tax reliefs.
Find out just how much you can save in tax reliefs with your SRS account.
Invest your SRS funds
Your SRS contributions earn a mere 0.05% interest per annum if you only keep them only in your SRS bank account. So when you consider that inflation is approximately 2%, your SRS funds will most certainly lose value over time.
Hopefully that low 0.05% interest per annum is enough to convince you that you should invest your funds. At the very least, you should try to keep up with inflation, but you probaly also want to earn more in the long term. And when you earn money with your SRS investments, those funds will go back into your SRS bank account before you liquidate them.
If you contribute $15,300 SGD per annum and you keep it in cash, you’ll have $306,000 SGD after 20 years; but if you instead invest the savings and earn 5% net returns per annum, you'll have $505,909 SGD after the same 20 years.
The value of SRS savings vs. investing SRS Funds
Now, you can see the power of investing your SRS funds. Given that you’ve already decided that you don’t need this money for a long time, make sure that your SRS funds work for you over this time. Just as with any investment, be sure to pay close attention to the different fee and pricing structures of the investments you choose.
Strategise your SRS withdrawals
Timing your withdrawals properly is the key to maximising your tax advantage with your SRS contributions. Unlike with CPF, you can't invest your SRS in property, and nor can you withdraw it for medical purposes. If you don’t meet the early withdrawal conditions, you'll face a 5% penalty, and 100% of the withdrawal would be taxable. And once you withdraw, you can’t contribute again.
When you reach the statutory retirement age of 62, you can spread out your withdrawals over a period of up to 10 years, starting on the date of your first withdrawal. At that point, 50% of your SRS withdrawal will be subject to tax. The best strategy, therefore, is to minimise any income tax during those 10 years by spreading the withdrawals out to withdraw more when you don't have other income streams that year.
Currently, personal income starts getting taxed at $20,000 SGD. This means that, if you don't have any other taxable personal income, you can withdraw up to $40,000 per year tax-free from your SRS bank account, for 10 years.
Are you making the most of your SRS funds?
There’s a lot to consider when optimising an SRS account: from how much you contribute each year, to when and how much to withdraw, and where to invest your SRS funds. But, SRS can be a great way to save more for retirement, especially when you take advantage of the long-term benefits.
Learn more about investing your SRS →
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