What to invest your SRS funds in

If you happen to had topped up your Supplementary Retirement Scheme (SRS) at any level earlier than to scale back your revenue taxes, you need to notice that your funds solely earn measly 0.05% p.a. curiosity. With elevated inflation ranges as we speak, keep away from dropping the worth of your retirement funds by investing them as a substitute. Right here’s how.

It’s loopy to assume that whereas banks have raised their rates of interest over the past 2 years to maintain up with the Fed hikes and retain deposits, none of that applies to our SRS account, which nonetheless earns a depressing 0.05% p.a. Good for the banks, I suppose, however horrible for us.

And that’s why I don’t simply preserve my funds idle in my SRS account. But it was shocking to learn that 1 in 5 Singaporeans do that, and whether or not this is because of ignorance or pure laziness is anyone’s guess.

As a taxpayer in Singapore, the SRS is a great way to legitimately reduce one’s income taxes payable…capped at a restrict of $15,300 per 12 months. I’ve talked about it usually, and also you undoubtedly ought to use the SRS if you happen to’re making an attempt to pay much less taxes!

Then, when you flip 63 (i.e. hit the prevailing statutory retirement age), you’ll have the ability to make penalty-free withdrawals out of your SRS account to fund your retirement way of life and be taxed at solely 50% of the sum withdrawn.

Psst, the statutory retirement age is about to be revised to 65 by 2030. Opening your SRS account earlier than that occurs and funding it (even when simply with $1) will show you how to to “lock in” your withdrawal age at 63.

Vital notice: This is applicable for Singaporean residents. For Everlasting Residents and non-citizens residing in Singapore, different taxation laws apply, which you can view here on IRAS.

However what’s even higher than that?

When you will get away with paying ZERO taxes ?

That’s proper, with cautious planning, you’ll be able to even keep away from paying revenue taxes completely in your funds withdrawn!

Right here’s the way it works in as we speak’s context:

• People with an annual revenue of $20,000 or much less aren’t obliged to pay any taxes in Singapore (the income tax rate for this group is 0%).
• So the trick is so that you can withdraw $40,000 every year out of your SRS account, you’ll solely be taxed on 50% of that i.e. $20,000.
• In different phrases, you received’t need to pay any taxes ?

Nonetheless, if you happen to’re a excessive revenue earner or a talented investor can develop your SRS funds to a bigger quantity (e.g. $800k), your tax charge can nonetheless be low e.g. withdrawing $80k a 12 months out of your SRS solely incurs a $350 tax.

So let’s think about that we max out our yearly contributions of $15,300 between the age of 35 – 55 (20 years). This interprets into $306k in whole.

Even when we’re fortunate sufficient to proceed incomes a excessive wage between age 55 – 60 and might contribute for one more 5 years, that works out to be $382,500 on the finish (or $384,996 to be correct, after accounting for 0.05% p.a. curiosity).

That’s hardly near the perfect quantity of $400k in any respect!

Thus, you’ll be able to see that so as to meaningfully develop your SRS retirement funds, it’s essential make investments it to earn higher returns.

What can my SRS funds be used to spend money on?

Right now, there are a variety of investments you can select from in your SRS funds.

A false impression is you can solely make investments by way of the SRS supplier the place you have got your account with (e.g. DBS / OCBC / UOB). The truth is, you should use nearly any dealer of your alternative, so long as you hyperlink your SRS account because the supply of your funds.

Vital Word: You possibly can solely use native brokers to take a position your SRS funds, which suggests fashionable low-cost brokerage companies corresponding to Tiger Brokers, MooMoo, WeBull, Interactive Brokers, TD Ameritrade, Saxo Capital, uSMART, and so on is not going to be out there so that you can make investments your SRS funds in.

I’ll cowl a couple of methods you can discover investing your SRS funds in, whereas sharing about which strategies I desire to make use of:

Singapore Financial savings Bonds

For the tremendous risk-adverse who don’t need to take any threat in your capital, you’ll be able to spend money on Singapore Financial savings Bonds – the most recent tranche presently yield a median return of two.81% p.a. The excellent news is, you’ll be able to make investments as much as $200,000 (MAS has raised the restrict up from $100k beforehand).

Alternate-Traded Funds

Those that want to make investments and get market returns can take into account exchange-traded funds, which generally observe an underlying index as its benchmark. That is a simple method to diversify and get broad-based publicity with out having to do an excessive amount of analysis on particular person shares both.

In Singapore, popular ETFs used by many SRS investors embrace these monitoring the Straits Occasions Index (STI), bond ETFs and REIT ETFs.

A RSS plan is a simple method to spend money on shares, bonds, ETFs or REITs listed on the SGX from as little as $100 a month. If you happen to desire to dollar-cost common into the market as a substitute of making an attempt to time the market, this may very well be a superb possibility for you.

You possibly can arrange an RSS plan with any of the beneath 4 native brokerages:

• FSMOne ETF Common Financial savings Plan
• POSB/DBS Make investments-Saver
• OCBC Blue Chip Funding Plan
• Phillip Share Builders Plan

Shares

You may as well use your SRS funds to take a position instantly in shares listed on the SGX, corresponding to in robust blue-chip corporations like DBS Financial institution, OCBC or Capitaland Trusts.

Nonetheless, I personally don’t practise this as a result of I desire to have liquidity in my inventory account. There’s nothing incorrect with this methodology, however that is simply my private choice.

Robo-Advisors

Digital robo-advisory platforms corresponding to MoneyOwl and EndowUs additionally can help you use your SRS funds to take a position with them, corresponding to of their money administration accounts or low-cost unit trusts (e.g. Dimensional Funds).

Insurance coverage

You may as well use your SRS funds to spend money on single-premium insurance coverage merchandise, endowments or annuities. Because the 10-year withdrawal interval restrict for SRS accounts doesn’t apply to annuities, this makes SRS annuity merchandise much more enticing.

Nonetheless, the downsides are that returns on such insurance coverage merchandise are usually low (averaging 2 – 3%) and comes with bigger sums for funding, with prolonged lock-in durations.

This isn’t one thing I favour since I’m nonetheless younger and have a long term funding horizon, however I’m overlaying this because it continues to be a well-liked device utilized by many SRS buyers.

So…what does Funds Babe make investments her SRS funds in?

Personally, my choice can be for ETFs or unit trusts on the subject of managing the funds in my SRS account.

That’s as a result of I would like one thing for the long-run, which I don’t need to constantly monitor as usually, and might let it run extra passively in distinction to my energetic inventory funding account.

One more reason is that I’ve a decrease threat tolerance on the subject of my SRS funds, as these are meant primarily for my retirement and I don’t need to tackle an excessive amount of capital threat. For the reason that volatility in particular person shares are greater, I desire to not deploy my SRS funds right here.

Use your SRS as a device to spice up your retirement revenue

My husband and I are planning for our retirement in such a approach that we hopefully is not going to need to depend on our youngsters giving us allowance to outlive. You can also read about how I feel about this “parental allowance” topic here on CNA.

Because the title suggests, your SRS ought to complement your different retirement funds, so don’t make the error of relying in your SRS funds alone for retirement as that’s unlikely to be sufficient.

At $40k withdrawn a 12 months, that works out to be about $3,333 a month – however given inflation ranges and the rising value of dwelling, you’ll must ensure you produce other revenue sources funding your retirement years as effectively.

Right here’s mine:

I’ve already deliberate for my CPF Life payouts – click on right here to see how I’ll be reaching $5,000 a month. My SRS and inventory dividend portfolio are nonetheless very a lot a work-in-progress and I’ll be persevering with my efforts there to construct it up over time.

A few of our buddies have already secured their funding property for his or her retirement plan, however in the intervening time, we’re nonetheless a couple of years away from making ours grow to be a actuality (principally resulting from MOP timelines). As soon as that’s settled, I’ll breathe one other sigh of reduction.

Lastly, I hope to finally have sufficient money financial savings put aside in fastened deposits, treasury payments and short-term endowment plans for the aim of liquid cashflow within the occasion of any emergencies. 20% will likely be at all times stored absolutely liquid to allow a month-to-month withdrawal of $1,000 every month.

If my plan works out, this may enable us to have a snug retirement – one the place I can’t solely pay for our personal dwelling bills, but additionally journey overseas and even pay for meals and presents for our youngsters with out worrying that we’ll run out of cash.

Essentially the most encouraging half is, even if you happen to’re clueless and get rid of the portion from inventory dividends and rental revenue, you too, can safe an honest retirement quantity for your self by constructing together with your CPF and SRS from the beginning. The important thing factor then, is to start out early.

How are YOU planning in your retirement?

With love,
Funds Babe