Supplementary Retirement Scheme (SRS)

I met up with my financial planner who is professional in his advise and planning which is different from those who I met in past. 

Today I am going to discuss about Singapore Supplementary Retirement Scheme (SRS). The SRS is Singapore government's strategy to address the financial needs of a graying population. SRS is voluntary unlike the CPF. The contribution can be used to purchase investment instruments. Contributions to SRS will enjoy tax relief, 50% of the withdrawals from SRS are taxable at retirement. SRS account is deemed closed at the end of the 10th year of withdrawal period. Any returns from investment through balance in SRS account after Deemed Withdrawal has applied will be taxed.

For 2011 to 2015, the yearly maximum SRS contribution is $12,750 and from 2016 onwards, the maximum contribution will be at $15,300. The strategy which I am thinking of adopting will be to accumulate a maximum of S$400,000 at the age of 62. Then I will draw down $40,000 per year. As half of the amount will be taxable and the first $20,000 will be tax free or 0% tax. From the taxation point of view, with the contribution of SRS will help me to save approximately $1,000 on tax. I can use this contribution to invest on a high dividend stock and grow my tool for retirement.

Below is some illustrations of the calculations:

First $80,000 - $3350
Say next $20,000 - 20000 x 11.5% - $2,300
Total tax = $5,650

If you contribute to SRS
First $80,000 - $3350
Next $20,000 less $12,730 = $ 7,270 (If contribute maximum amount to SRS)
This tier will be subjected to tax of $7,270 x 11.5% = $836.05
Hence total tax now = $ 3350 + $836.05 = $4,186.05

I will contribute to SRS if I still have this happy problem next year. This year is a blessed year, I will enjoy tax relief of $5,000 from my newborn. I need to save up on my emergency fund of 6 month expenses. I did a forecast, this will be achieved by June 2016. This forecast amount will allow me to clear my existing short term loan. Furthermore, this is assumed that I do not throw any more fund into the stock market.