As the name implies, the Supplementary Retirement Scheme (SRS) has one sole purpose: preparing you for retirement, unlike CPF, where you can use it to buy property or even pay for medical expenses. So it's even more important to maximise the benefits of your SRS account to build robust savings once you reach your golden years.
If you don’t have an SRS account, read about why you should open one. But if you have one, did you know there are many ways to make your SRS funds work even harder for you?
Read on and learn how to make the most of your SRS account with just four strategies to meet your retirement goals.
Consider SRS investing as a long-term commitment. To make the most out of it, you’ll need to stay invested until the statutory retirement age, 63 for Singaporeans and at least 10 years for foreigners. Although you can technically withdraw your funds before you turn 63 years old, bear in mind you’ll be subject to a 5% penalty fee plus any applicable taxes on your early withdrawal.
To ensure you won’t need to tap into those funds, follow one simple rule: contribute to your SRS only if you have sufficient liquidity. In other words, have at least 9 to 12 months of living expenses between saving accounts and low-risk, liquid investments before contributing to your SRS.
Singaporeans and PRs can contribute up to $15,300 SGD per year, and foreigners are capped at $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.
Your SRS contributions earn you a mere 0.05% interest per annum if you only park them in your SRS bank account. In other words, your funds are sitting idly and will lose value to inflation over time.
Instead, a better strategy is to invest your SRS funds to keep up with inflation and earn more in the long term.When you earn returns with your SRS investments, those returns will be reinvested and compounded.
To demonstrate, 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 invest the savings and earn 5% net returns per annum, you’ll have $505,909 SGD after the same 20 years.
This is the power of investing your SRS funds. Given that you’ve already decided you won’t be needing this money in the near future, make sure your SRS funds work for you during this time. Just as with any investment, pay close attention to the different fee and pricing structures of the investments you choose.
Timing your withdrawals is the key to maximising your tax concessions with your SRS account. One thing to note: 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 the funds are withdrawn, you can't contribute again.
Once you reach the statutory retirement age of 63, you can spread out your withdrawals over 10 years, starting on the date of your first withdrawal. At this point, 50% of your withdrawals will be taxed. To minimise taxes, the best way is to spread out your withdrawals and only 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.
There’s a lot to consider: from how much you contribute each year, to when and how much you withdraw, and where you invest the funds. But it’s hard to dispute that SRS can be a great way to save more for retirement, especially when you take advantage of the long-term benefits.