What is SRS Account or Supplementary Retirement Scheme?
SRS Account investment is something you cannot miss out especially if you are a high income earner. If you have not opened a SRS account, you may consider to open up one with any of the three approved banks namely DBS , OCBC and UOB. So, what is SRS Account or Supplementary Retirement Scheme? This SRS Singapore is a MOF initiative started since 2001 which allows a Singaporean, Permanent Resident or even a foreigner to open such SRS account so as to put $12,750* annually into this special saving account to enjoy a tax relief on his or her contribution and also to invest the funds at the same time. A SRS Account applicant must be above the age of 18 and is not a bankrupt.
* Post Update dated 24 Feb 2015 :
With 2015 Budget announced by Finance Minister, Mr. Tharman Shanmugaratnam, there will be an increase in SRS contribution cap as follows:
From 1 Jan 2016, the annual SRS contribution cap will be increased to:
(i) $15,300 (15% x $102,000) for an SRS member who is a citizen of Singapore or a Singapore permanent resident; and
(ii) $35,700 (35% x $102,000) for an SRS member who is not a citizen of Singapore or a Singapore permanent resident.
If you are at a age of 40 and contributing $12,750* (See notes annually into your SRS account, it is possible to achieve a total saving of $480,000 assuming a 4% returns per annum at the retirement age of 62. Thereafter, you can draw this retirement funds for a period of ten years. Here are the benefits of SRS Account
• Enjoy tax deferment on your SRS contributions. Each dollar of SRS contribution will reduce your taxable income by a dollar.
• 50% of your accumulated SRS savings will not be taxed (i.e. a 50% tax concession) when you withdraw after reaching the statutory retirement age (this refers to the statutory retirement age prevailing at the time of your
Considerations Before opening up a SRS Account
Whether if you are earning $50,000 annual income or over $100,000, you should have an SRS account and start to invest at a younger age. While this is something very useful to build up your retirement nest, you should not consider to put your routine expense amount straight into this SRS account. Do this only when you are comfortable to do away with $12,750* annually or you can just contribute part of $12,750*.
While this supplementary retirement scheme has several benefits, cash is still is King after all. A smarter way adopted by many averaged Singaporeans is to put their cash into their SRS account at a amount so as to make them pay zero income tax. If one has a much higher taxable income, he or she may still have to pay for the tax after this tax relief but at least this is an immediate tax relief to take advantage upon. Once this fund is credited into the SRS account, do not even attempt to withdrawn it until the age of 62.
Before you open a SRS Account and start to invest, you will need to be aware of the following for withdrawal before the statutory retirement age of 62:
- You can withdraw funds from your SRS account at any time : 100% of the sum withdrawn will be subject to tax;
- 5% premature withdrawal penalty on the sum withdrawn will be imposed, unless withdrawal is made under the some exceptional grounds for e.g. death, medical reasons, bankruptcy and etc.
Types of SRS Investment
SRS Investment options include the following:
- Unit Trust
- Fixed Deposit
For the best of both world, it is not difficult to guess that a savvy property investor to use this SRS fund to invest in SRS stocks at the right time aside the options of using CPF-OA and CPF-SA for property stocks or REIT investment. This helps to save on taxes while making money works harder than before. However, do note that SRS Account cannot be used for any real estate investment. Certainly, like every investment, such investment will also have a risk and you must do your own due diligence to invest with care. To minimise such risk, use your SRS funds to invest in property stocks and REITs at the downturn of the economy to reap in the capital appreciation as well as annual dividend gain. To retire comfortably is not an impossible goal of an averaged Singaporean at all.
SRS Account Statistics
Refer to SRS Account statistics. as of Dec 2013, 24% is used for SRS investment such as shares, REITs and ETFs. The majority age group lies between the age of 36 and 55. By just looking at the trend from December 2001 to Dec 2013, it is not difficult to see its increasing popularity among Singaporeans. Yet, it is also sad to see that there are still quite a lot of Singaporeans who do not know about this money saving supplementary retirement scheme or simply choose to ignore it. Why i say that? There are only 91,652 account holders as of Dec 2013.
If you are already at a age of 40 with higher taxable income and have not considered SRS investment as one of your investment options, you should start thinking and act upon it. This will ensure you have immediate tax relief as well as another safety net aside your CPF savings and investments.
Remember, SRS Singapore is unique and no where in other countries offer such tax relief scheme. It may be from 2015 to the next few years, retirement age may change from age 62 to 67. For those who have not opened a SRS account can consider to open it before the legislation to increase retirement age takes place or otherwise the withdrawal of SRS money without 5% penalty will be pushed to the age of 67. You may save any amount from $1 to $12,750* into your newly SRS account and lock your first year of SRS fund withdrawal at the age of 62 rather than at the age of 67.
For me, the attractiveness of SRS investment is too obvious not to be missed and i have been investing all my SRS funds into REITs since sub-prime crisis in 2009. Financial planning plays an important role now and not at the age of retirement. Hope you find this blog useful.