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A Comprehensive Guide To Supplementary Retirement Scheme (SRS)

Updated: Feb 2, 2022

It’s almost the end of the year, which also means…it’s time for us to look into different ways to reduce our taxes…legally, of course!

If you are new to SRS, then this email will be very useful for you.

If you are already contributing to your SRS, jump straight to 2022 changes.

You should also encourage your friends to start opening an account this year because there will be some changes to the statutory retirement age from next year onwards.

What is SRS?

Below is an explanation according to the IRAS website.

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.

The above is quite a mouthful. Let me break it down into 3 parts for easy understanding.

1. Tax Savings

Mr. A earns an annual income of $100,000 and decides to contribute $15,300 to his SRS in 2021. Come April 2022 when he is filling for his 2021 taxes, his chargeable income will drop to $84,700 (assume he does not have any other tax relieves).

How this contribution will benefit Mr. A, you may ask.

Here is the impact of the taxes Mr. A will incur.

We can see that Mr. A has a tax saving of close to $1,760. Why? Because with the contribution to the SRS, the taxable income has become lower. Hence, the tax bracket has dropped from a higher category to a lower category.

You will realize that the tax savings above hinges on two factors:-

  • Your annual chargeable income

  • Your SRS contribution amount

Here is another example of Mr. B earning $150,000 (assume he does not have any other tax relieves):

(Figures generated are based on IRAS estimated tax figures)

Mr. B will have a tax saving of close to $2,295.

The takeaway here is that the higher your annual income, the greater the tax savings you will enjoy.

Likewise, if you contribute $5,000 rather than the cap of $15,300, you will have lesser tax savings.

One important question one may ask is, how much should my annual income be in order to enjoy such savings?

There is no one size fits all answer. Some people will contribute to SRS to enjoy the tax savings. Some, regardless of the tax savings, will not contribute to SRS.

For foreigners, you are also entitled to SRS contribution and tax savings. The maximum limit is $35,700.

If you are uncertain, you can reach out to me and we can discuss further based on your situation.

2. What happens to the money in SRS?

After knowing the benefits, let’s take a look at the money when it is in SRS.

By default, the interest rate is based on the bank’s interest rate. If the bank’s interest rate is 0.05% per year currently, then your SRS will only have 0.05% interest.

The other important aspect to know is that you can only take out your SRS money at the statutory retirement age.

Those who have started their SRS contribution earlier or this year will be able to withdraw from the age of 62.

Any withdrawal before the age of 62 will mean the government will claw back the tax savings you have enjoyed and a 5% penalty tax.

2022 Changes

For those who start their contribution next year, the statutory retirement age is raised to 63. This means that you can access SRS money 63 onwards.

Do note that it doesn’t mean if you have contributed earlier, they will push back your withdrawal age.

Rather, the withdrawal age is based on your first contribution.

Hence, if you have not started your SRS account, do yourself a favour and make a $1 contribution this year to lock in the withdrawal age limit.

And please share with your friends this information because it will make a difference to them.

Even if you don’t believe you will need to contribute to SRS, lock in the statutory age withdrawal first. We will never know what happens down the road.

Is SRS really worth it since the SRS interest rate is not attractive and my money is locked in till age 62?

Exactly! That’s why we need to use our SRS to work harder for us.

  • Fixed deposits

  • Bonds

  • Singapore listed equities

  • Endowments (savings plan)

  • Unit trusts

You can choose a vehicle that fits your risk profile and circumstances.

3. Withdrawal Strategy

When you reach 62 and say you have accumulated $400,000, it is not wise to withdraw the full amount at one go.

We have to note that the withdrawal from SRS is deemed at chargeable income but only 50% of it will be taxed.

This means that if I were to withdraw $400,000, $200,000 will be my income for that year. The tax is going to be very high as seen in the earlier email.

The trick is to spread the SRS withdrawal across 10 years. This means that I’m withdrawing $40,000/ year but only $20,000 is being charged for tax.

And based on the current tax bracket, $20,000 and below is not chargeable for tax.

On the other hand, I’m having an annual income of $60,000/ year and I’m withdrawing $40,000 that year, so my chargeable income for that year will be $80,000.

Bonus trick: you can push back your withdrawal voluntarily if you are still working so as to reduce your taxes.

Below is a graphic to summarize what we had discussed:

Kindly note that the age of 40 (for the first contribution) and 60 (for final contribution) is for illustrative purposes. You can contribute to the SRS account at any age until the first withdrawal of your SRS money.

Do feel free to reach out if you have further queries.

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