Singaporeans love their acronyms. So, here’s another one to add to your list which may also add to your coffers – SRS. What should interest you about the Supplementary Retirement Scheme is that, if properly managed, it not only helps you reduce what you pay to the taxman, but can also help you achieve the S$1 million plus that financial advisers postulate you need to retire comfortably.
SRS is a voluntary long-term savings programme that complements the Central Provident Fund (CPF). Three banks offer the scheme – DBS, OCBC and UOB.
S is for Savings
SRS allows you to put in a maximum of S$15,300 a year. If you start at 30 and retire at 62, you’ll have S$489,600 to retire with. If you choose to work till 65, that booty will come up to a whopping S$535,500 or more than half of what you ideally need to retire well.
Sure, there is a 5% penalty and taxes when you withdraw before 62. But think of it as a good way to deter you from using your SRS savings till you retire.
R is for Reduce Taxes
You need not pay tax for the money you put in your SRS. Taxes in Singapore work this way:
- The first S$40,000 you earn each year is taxed up to S$550
- The next S$40,000 is taxed at 7%
- Anything over S$80,000 is taxed at between 11.5% and 20% or 22% from 2018
So, contribute to your SRS now and it can help your tax situation in 2019. Assuming an annual income of S$80,000, a maximum contribution to your SRS means a tax savings of about S$1,000 or S$32,000 by the time you retire.
The tax savings continue even when you retire. At 62, if you withdraw S$40,000 a year, only 50% or S$20,000 will be taxed. Since you are taxed on your personal income only after the first S$20,000, you end up paying zero taxes on your SRS withdrawal.
Even if you withdraw more, say S$80,000, you still save on taxes because you would normally be taxed S$3,350 on that amount. Thanks to SRS, the tax would only work out to S$550. This gives your retirement funds more mileage.
S is for Smart Money
The money in your SRS can be put to work. You can buy stocks, funds and life annuities with the money. All your investment returns go back to your SRS, preventing you from dipping into your future savings. If you estimate a 4% p.a. return, with compound interest, at the end of 32 years, you are looking at a little over S$1 million. Yes, those returns will eventually be taxed when you withdraw them. But if you take your money out reasonably (as we mentioned above), the tax can be quite bearable.
With not many days left until the end of the year, you have only some time to make a difference to your taxes in 2019 and your future. Start now.
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