From contributing early to your SRS account, to planning your withdrawal strategy, there are many ways to maximise the returns of your SRS funds while paying the least tax.
Check out these 5 strategies you can use to get the most returns out of your SRS account:
1. Open your SRS account and contribute $1 today
Singaporeans and Permanent Residents (PR) are only allowed to withdraw their SRS funds when they reach the present statutory retirement age – 62 years old. While you may not be anywhere near retirement or 62 years old, the year you make your first contribution to your SRS account matters, because it will determine the age you can withdraw your SRS funds without penalty.
If you have not heard, the retirement age will be increased, effective from 2022, from 62 to 63 years old, and to 65 years old by 2030. So if you want to withdraw your SRS funds as soon as possible, do remember to make your first contribution before 2022. Even if you’re not earning more than $40,000 to contribute extra to your SRS account, you should open one and deposit $1 today, to ensure that you can withdraw without penalty at 62 years old, since there is no minimum contribution amount anyway.
2. Max out your SRS contribution
As Singaporeans or PRs, you are allowed to contribute up to $15,300 every year to your SRS accounts, while foreigners are allowed to contribute up to $35,700 every year to reduce your chargeable income. If you are not aware, there is a significant jump in payable tax once your chargeable income is more than $40,000.
Considering that contributions to SRS accounts have tax benefits, you should contribute the maximum amount to your SRS. By maxing out your SRS contributions, you will also get to fully utilise the tax benefits of SRS accounts. However, it is important that you have sufficient savings and emergency funds before maxing out your SRS contributions, as early withdrawals before the statutory retirement age will incur a 100% tax, in addition to a 5% penalty fee. That’s why you should always treat your SRS funds as completely tied up until you retire.
3. Invest your SRS funds
Your SRS contributions only offer an extremely low return of 0.05% p.a.. That’s why you shouldn’t leave your SRS account idle. 0.05% p.a. return can barely grow your retirement fund, let alone hedge against inflation. Your money will depreciate over time.
As you plan for retirement, you should aim for your SRS funds to at least earn a return more than the current inflation rate of approximately 2%, especially because your returns are tax-free with your SRS account.
For more risk-averse individuals, you can consider SRS-approved endowment plans, Fixed Deposits or Singapore Saving Bonds (SSB), where both capital and interest are usually guaranteed. If you are a risk-taker who is looking for higher returns to fund your ideal retirement life, you can consider Unit Trusts, Blue Chip Stocks or REITs.
Not sure what to invest your SRS funds in? Don’t worry, our experienced consultants can help you find the right investment to get you your desired results. Contact us or Whatsapp us at +65 9151 5963 (Mon to Fri: 9am – 5pm) to find out more.
4. Invest it strategically
As you understand the importance of investing your SRS funds, you should make investments that complement your current portfolio. For example, if you are already doing investments in equities or REITs outside of your SRS accounts, you can consider investing in a life annuity plan.
There is a 10-year withdrawal period where only 50% of your SRS fund withdrawals will be taxed. Life annuity plans are exempted from this 10-year withdrawal period. In other words, 50% of the income you receive from your life annuity will continue to be exempted from tax, even after 10 years. For instance, if you choose to invest in a single premium endowment plan at 62 years old, you will start receiving cash dividends at 72 years old, and despite exceeding the 10-year withdrawal period, you will still be able to receive 50% of your cash dividends, tax-free.
5. Plan your SRS withdrawals
Strategising your withdrawals timely is the key to making the most of your SRS funds. With cleverly timed withdrawals, you can minimise your tax during retirement, while maximising your investment returns for your retirement fund. If you decide to withdraw early, before the statutory retirement age, 100% of your withdrawal will be taxable, on top of incurring a 5% penalty fee.
For the first 10 years after you reach the statutory retirement age, only 50% of your SRS withdrawals is subjected to tax. After these 10 years, your SRS withdrawals will be subjected to 100% tax.
For example, let’s say you retire at 62 years old with $400,000 in your SRS funds. You will only need to pay income tax if your annual chargeable income is above $20,000. Assuming that you do not receive any other income, only 50% of your withdrawal is taxed. Therefore, you can withdraw $40,000 (after 50% tax concession, only $20,000 chargeable income) every year for 10 years, tax-free.
Check out our SRS-approved plans or contact us to learn more on how to maximise your SRS returns today!
This is for general information only and does not constitute financial advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.