My thoughts on SRS Account

- I belong to the 8.5% income tax bracket, and my income tax adds up to about $3,000+ every year, if I don’t contribute to SRS.

How much do I intend to contribute to SRS?

- I plan to contribute $5,000 every year to my SRS account from 2009 onwards. This will help me defer $5,000 x 8.5% = $425 each year.

* Assuming I continue to be in 8.5% tax bracket and continue to contribute $5,000 to SRS account until my statutory retirement age of 62 years old, I will be able to save $12,750 (= $425 x 30 years).

[I started my SRS contribution when I was 31 years old, so 61-31 = 30 years]





Now, by the time I reach statutory retirement age of 62, depending on the returns from my investment in SRS, over 30 years, I would have accumulated
- S$250,013 (compounded at 3%p.a.)
- S$296,642 (compounded at 4%p.a.)
- S$353,804 (compounded at 5%p.a.)


AT RETIREMENT AGE OF 62,

I plan to withdraw S$40,000 each year, that should give me S$3,333 of income each month (= S$40,000 / 12 months in a year).

[Presently, personal income below S$20,000 is not subjected to income tax. And since only 50% of amount withdrawn from SRS account post statutory retirement age is subjected to income tax. This means that I would be able to withdraw S$40,000 each year without having to pay income tax.

Assuming this tax regime do not change and by the time I reach statutory retirement age of 62, S$20,000 is still the benchmark, okay, I know this is quite impossible. Given inflation, it is extremely likely that IRAS will raise the S$20,000 to an even higher sum. That will mean that I may be able to draw out more money without paying tax. the S$40,000 withdrawn each year would give me an income of S$3,333 each month.

Convert S$3,333 to Present Value based on 3% inflation, S$3,333 would give me about S$1,333 each month in present value. Well, this is quite close to the monthly expenses I need to survive on. Currently, I need about S$1,500 for personal daily expenses.


So long can this last me?
Let’s take average return of 5% p.a. The S$353,804 (at the time when I reach 61 years old) will enable me to withdraw S$40,000 each year for the next 8+ years.

So, between 62 to 69 years old, I will tap on withdrawal from my SRS account for my living expenses. Post 69 years old, my retirement nest in cash will then be utilized. Perhaps, I can plan to start my CPF life scheme (annuity plan) from 70 years old onwards.


HOW MUCH WOULD I HAVE SAVED ON INCOME TAX?
Assuming $425 per year for 30 years, the following would be the amount that I would have saved at 62 years old, compounded at the various rates

- S$21,889 (compounded at 3%)
- S$26,223 (compounded at 4%)
- S$31,577 (compounded at 5%)


S$31,577 is equivalent to S$12,630 (in present value) discounted at 3%. Quite a substantial savings actually!

What is Supplementary Retirement Scheme (SRS)?

After reading about SRS account, my hubby and I opened our SRS account last year with UOB.


Background :
- SRS can help higher income earner save tax while saving for retirement.
- SRS is opened to Singaporeans, Permanent Residents and foreigners above 21 and not undischarged bankrupts and are not of unsound mind.
- Participation is entirely voluntary. Participants can contribute a varying amount to SRS (subject to a cap).
- If you earned employment income in preceding year, you are allowed to contribute to SRS.
- The contributions may be used to purchase various investment instruments.


How to Participate:
- You can open an SRS account with one of the 3 local banks.
- There are however, service charges on the account that you have to note.
- The maximum contribution rate for Singaporeans is S$12,750 and foreigners is S$29,750.
- Contribution must be made in cash.


What Can I invest my SRS Funds in:
- Single Premium insurance (including annuity & non-annuity plan)
- Life cover (including TPD benefits)
- Excluded are life insurance eg. critical illness, health and long term care.
- ETF funds.
- Purchase of properties is not allowed.


How to Withdraw SRS Funds:
- Withdrawal from SRS can be made anytime.

- However, if the withdrawal is made before a statutory retirement age prevailing at the time of your first contribution, 100% of the sum withdrawn will be subjected to tax. A 5% penalty for premature withdrawal will be imposed.

- 5% penalty will not apply if withdrawal arises under death, permanent incapacitation, bankruptcy and full withdrawal of SRS balance by foreigner who maintained his SRS for at least 10 years.

- All withdrawal must be made in cash, and withdrawal can be any amount.

- 50% of the withdrawal will be taxed at your marginal tax rate for the following types of withdrawal:

> withdrawal on or after statutory retirement age (prevailing at the time you first contribute to SRS).
> withdrawal on medical grounds
> withdrawal on death
> withdrawal by foreigner who maintained his SRS for at least 10 years from the date of his first contribution.

- Otherwise, 100% of the sum withdrawn will be taxed at your marginal tax rate in all other situations.

- Withdrawals are to be made 10 years from the statutory retirement age or 10 years from prevailing statutory retirement age, whichever is earlier.