The CPF LIFE savings are not sufficient for your retirement needs in Singapore. You need to be aware that the cost of living here is extremely high and for that comfort you need after retirement, it is essential to chalk out additional saving plans. This ensures your life after retirement is easy and convenient. This is where you can plan on the SRS Singapore account, which is the Supplementary Retirement Scheme offered by the government of Singapore.
What is Supplementary Retirement Scheme?
The SRS, or the Supplementary Retirement Scheme is a saving scheme which is voluntary that is specifically designed keeping your retirement in mind. The CPF is an involuntary saving scheme which is designed in a way that you get only the very basic retirement income. You find most people buy homes with the CPF Savings and thus finances after retirement becomes problematic.
The SRS account, Singapore is exempted from tax in the following year. This is applicable to a specific amount contributed, which is $15,300 for Permanent Residents and Singaporeans. Withdrawal of funds can be anytime with this SRS Account, Singapore, but you will be penalized at 5% and are taxed at the amount withdrawn before the age of retirement.
*Tax Savings with SRS Account:
The benefit of opening the Singapore Retirement Scheme account is due to the tax relief offered. You need to have the knowledge of the amount of tax you are paying at the present time to decide whether opening this SRS Account, Singapore is worthwhile or no.
This scheme works in the positive for those who earn a high taxable income. They can reduce the income tax to a great extent.
*Investing the SRS Contribution:
The contributions which are unused in the SRS account, can earn an interest of only 0.5% annually. Investing the SRS contributions works out beneficial or else the inflation can erode the savings.
You have a wide choice of financial instruments to invest in. You can decide on fixed deposits, bonds, unit trusts, stocks and annuity plans. With the investment made of the SRS contributions, you can enjoy the double benefits offered, a higher return over a period of time and also tax relief.
*Gain on the Investments:
The gains made on the SRS investments go into the SRS account, Singapore. These gains are ‘tax-free’ unless you wish to withdraw the money.
At the age of 62, which is the statutory age of retirement, you can enjoy a tax exemption of 50% on the amount withdrawn from the account of Supplementary Retirement Scheme. If a member of the SRS has no other source of taxable income at the age of retirement then he does not have to pay any tax as the first $20,000 is exempted of any tax.
The members of the SRS have a period of ten years to make withdrawals from this account. The amount which remains in the SRS account, Singapore is considered as the total amount of withdrawal and 50% of this amount is taxed.
*Early Withdrawal Penalty:
The negative of the Supplementary Retirement Scheme is that any withdrawal which is made before the age of retirement has a penalty of 5%. The total amount which is withdrawn will be subject to tax.
You need to ensure that you do not need any funds before the age of retirement before you decide on contributions to be made in the SRS account, Singapore. The tax savings can be nullified with the 5% penalty.
The 5% penalty does not apply only if a withdrawal is made under an emergency like medical grounds, death or even bankruptcy. This penalty is also not applicable if the SRS account holder is a foreigner who has this account for a minimum period of 10 years from the day his first contribution was made.
How to open a SRS Account:
You have the option of opening your SRS Account, Singapore at any local bank like OCBC, DBS, or UOB. You can either apply online or even visit the bank of your choice personally along with the passport or the NRIC. Opening a Supplementary Retirement Scheme account is similar to opening any bank account. The exact procedure can vary in accordance to the bank.
The money can be deposited mobile banking/internet banking at the specific branch or even by a check . You have the choice of getting your employer to make a direct contribution to the SRS Account, Singapore but using CPF for topping up the SRS account is not allowed.
Who Benefits the Maximum?
Most of the people opening the SRS Account, Singapore are between the age of 36 years and 55 years. This is because their income is $40,000 or more and opening this account can offer them maximum benefits with the taxes.
This Singapore Retirement scheme is perfect for the saving you are looking for. .
Investments with SRS Accounts:
You have a wide range of choices available for investing the funds of the SRS Account.
*You can plan to invest on your own in stocks which are listed on the SGX (Singapore Exchange).This can be done via the brokers or you can also invest in Exchange Traded Funds/Bonds. The listing is available with the SGX. However, if you are not financially trained in knowing what to buy, you may lose money in buying or doing stock picking on your own.
A better choice might be to invest in a portfolio of Mutual Funds as these funds aim to outperform the benchmark since there are professionals fund mangers managing the portfolio whereas Exchange Traded Funds(ETFs) aim to track or follow the market benchmark. As much as ETFs tend to be less costly as compared Mutual funds or Unit Trust, such index tracking ETFs are passively managed by ETF managers and they do not try to outperform the underlying index. Index tracking ETFs have fees and charges that are usually lower than those of actively managed investment funds since it is more passively managed. You can also invest through TheFinLens panel of advisors since we have helped many of our clients managed their SRS account through investing in our SRS portfolio. We have also catered for individual’s needs depending on your risk appetite. We do have some capital guaranteed plans which you can invest using your SRS as well. (Hence your principal is also guaranteed upon maturity and gives 80X higher interest as compared to 0.05%p.a in your SRS)
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Before deciding on opening an SRS account, Singapore you need to be aware that this is a long term commitment if you intend saving and not losing out funds. You need to ensure that the money saved in the SRS account, will not be required till the time you retire. You have the choice of opening a separate bank account for specific retirement saving in case this SRS Account, does not work out for you or even top-up the CPF for 2.5% to 4% of guaranteed returns. The major benefit of the Supplementary Retirement Scheme is that tax benefit offered. Work out your preference and convenience before you make a choice of the SRS Account, Singapore.