The Supplementary Retirement Scheme (SRS) was started in
2011 2001 and is part of the Singapore government’s multi-pronged strategy to address the financial needs of a greying population by helping Singaporeans to save more for their old age. It is operated by the private sector (mainly local banks).
Participating in SRS is voluntary and you can contribute any amount to your SRS account, subject to a cap ($12,750 in 2015 and $15,300 from 2016 onwards). In 2013, the three local banks administering the scheme said they have seen up to 20 per cent annual growth rate in the number of new SRS accounts opened over the past five years which to me, is a good sign because that shows that more Singaporeans are planning for their retirement.
Despite the increase in new SRS accounts, there are many naysayers who are against the idea of contributing cash to SRS accounts.
Here’s a calculation on tax savings that I’ve taken from OCBC’s website on Supplementary Retirement Scheme based on an individual who earns $60,000 per year (that’s $5,000 per month) and $20,000 in personal reliefs.
Naysayers would say that it’s ridiculous to contribute $12,750 in cold hard cash just to enjoy $405 in tax savings, especially the case for the lower-tier of middle income earners. They also argue that the tax savings is minimal when compared to returns generated from investments made with the same amount of money.
The way I look at my SRS account, I see it as a retirement savings plan with the added bonus of tax benefits. It acts as forced saving to prepare me for future retirement and I can’t access the money until the age of 62. As a reward for saving for retirement, the same amount is deducted from my taxable income.
Some people see it the other way round, where the sole purpose of having a SRS account is for tax deductions and totally missed the point that it’s meant to complement their CPF accounts and build their retirement funds.
Using my OCBC Blue Chips Investment Plan (BCIP), I am able to use the money in my SRS account to make regular investments in the stock market. As I am focusing on creating an investment portfolio of ETF index funds, I use the money in my SRS account to purchase Nikko AM STI ETF shares every month. In the past few months where the market is on a downturn, the monthly investment from my BCIP account using my SRS money benefited me because it helped to average down on my Nikko AM STI ETF stock holdings.
In the past, all SRS withdrawals must be made in cash. If money in the SRS account was used in investments, the investments had to be liquidated before the proceeds could be withdrawn in cash from the SRS account.
From July 2015, SRS account holders will be able to apply to their SRS operators to withdraw investments from their Supplementary Retirement Scheme (SRS) accounts without having to liquidate their investments (refer to Ministry of Finance website).
This means that if I reach the age of 62, where I am qualified to withdraw from my SRS account and I didn’t have any urgent need for the cash, I can transfer $40,000 worth of investments from my SRS account to my CDP account. That allows my SRS investments to continue to grow in my CDP account and I can liquidate them when I need the cash. This method of transfer will also qualify for 50% tax concession.
As we continue to plan for our retirement, the reality is that policies governing our CPF accounts is ever changing and will continue to evolve according to our population trends, e.g. mortality rate, etc.
It’s safe to say that by the time I reach the stipulated retirement age, the age when payout from CPF Life commences is not likely to remain at 65. Having a fully funded SRS account of $400,000, I will be able to withdraw $40,000 from 62-72 without having to pay any taxes. That provides a fallback for me if the age where CPF Life payout commences is delayed by a couple of years.
As someone who is on the lower tier of the middle income class, I still believe that contributing to my SRS account has its merits and will continue to do so until it’s fully funded. I’m also pretty sure that my SRS account will play a pivotal role in my retirement planning many years later.
Are you contributing to your SRS account? I’d love to hear your thoughts.
In recent Mustachian news, a Google engineer called Brandon received his 15 minutes of fame when he was found to be living inside a 16-foot 2006 Ford truck and lived in the Google parking lot for free.
Unless you have been living under a rock, you’d know that it’s common knowledge that Google pays its employees well and provides one of the healthiest, happiest and most productive work environments possible. Living in a truck was an option that Brandon subjected himself to.
While Brandon was interning at Google last summer, he was living in the cheapest corporate housing offered: two bedrooms and four people for about $65 a night (roughly $2,000 a month). Like most Googlers, Brandon spends very little time in his apartment for the exorbitant amount of rent he spends on the apartment.
Once he knew he was coming back to Google to work full-time, he started plotting for a solution as the rental situation in the Bay Area is very expensive. Inspired by the experience of Ben Discoe, a programmer who spent 13 months living out of a conversion van in the Google parking lot, Brandon bought a truck for $10,000 (which was easily paid for with his sign-on bonus) and ‘moved into’ the parking lot in Google.
Brandon’s idea was that the only shelter he really needed was a place to sleep, and “company perks could provide the rest.” He eats all 3 meals at work and takes a shower every morning after working out in the corporate gym. He charges all his electronic equipment in the office and they last through the night so he never really needed a lot of electricity in his truck, if any.
By the way, Brandon’s never late for work since the office is just minutes away from his ‘home’.
As Brandon is able to avoid paying crazy rental fees and makes full use of Google’s amenities, he saves about 90% of his income and puts that money into paying off his student loan and building his investment portfolio. It also allows him to enjoy the San Francisco life better, dining in nicer restaurants with the money he would have spent on rent.
“If I do plan on traveling the world, I’ll need to be comfortable with unconventional living situations, and this is certainly a good place to start,” he writes in his blog. “Plus, there is never going to be a better time in my life for me to try this. I’m young, flexible, and I don’t have to worry about this decision affecting anyone else in my life.”
I’m going to keep this post short because I’m too busy looking at cheap deals in RedMart’s clearance sale.
If you haven’t done any online grocery shopping on RedMart before, there’s no better time to start than now. RedMart is running a clearance sale promotion this week on their website where hundreds of products are sold at 50% off retail price!
I’m looking picking up household essentials like shower foams, skin creams, bottled beverages, etc. in bulk and store them for usage through the rest of the year (and even 2016 too!).