Sunday, 5 August 2018

My Newly Created SRS Account

To the regular readers of my blog, who might wonder if you've read the title wrongly... 
Yes, you read it right.

As much as I'm looking into different financial product, I'm actually too early for any. 

However, this shouldn't be a factor, restricting me to venture further into the different tools available in the financial world.

With a regular dose of income for the past couple of months, I will be needing another tool to assist me further in this journey. This time round, with the inception of the SRS account.

From: SRS Booklet

While it will only be temporary, I'm sure that if I'm fortunate enough to draw an income over the tax bracket in the future, this account will once again be useful to me.

I'm also pretty certain that those that are aware of the SRS account will be scratching their heads in bewilderment while reading this.

The Supplementary Retirement Scheme (SRS) is a voluntary saving scheme that complements the CPF for our retirement, introduced in 2001 by MOF. There are currently 3 operators for the SRS today - DBS, OCBC and UOB.

For each dollar contributed to the SRS account, this will reduce your income chargable to tax by a dollar. Since 2016, the maximum amount that one will be able to contribute to the SRS account is S$15,300/year.

It is a deferred tax incentive as 50% of your accumulated savings in SRS will not be taxed when you make a withdrawal from the account after the statutory retirement prevailing at the time of your first contribution

Should you be receiving $3,500/month or $42,000 in annual income, you will be receive an income tax of $690. 

However, if you were to contribute $15,300 into the SRS account, your taxable income will then be pushed down to $26,700. With that, your net tax payable will only be $134. 

It surely does lock up your $15,300 till you're 62. But you're paying yourself instead of IRAS and you'll be able to withdraw this amount of monies to you after you've reached 62. 

Upon reaching 62, you will be able to withdraw your SRS funds over a spread of 10 year. The amount withdrawn will then be taken as your income and 50% of it will be taxed.  

However, if we're unemployed at that point of time with a balance of <$200k in our SRS Account. We could technically stretch the withdrawal over 10 years, untaxable as we do not satisfy the minimum income tax bracket. 

To simplify it, all regularly employed individual that draws an income over $1,666.67/month in Singapore will be subjected to income tax. 

The greater your income, the greater your tax. As much as possible, income tax is an expenses and definietly if there is a mean to reduce this expenses here, the more money we will have in our pockets.

In view of that, the SRS account seem to fit into the bill perfectly as long as we are receiving an income that exceeds the tax bracket. 

It always sound better to be paying myself instead of paying IRAS. With SRS, I'm given an option to pay lesser taxes in the future. 

Only if the income tax bracket narrows down or if the rate of chargable income increases very significantly in 42 years time, I will definietly be able to play around a little with the holes theoretically. 

Maybe I will pound on myself too!?

You may wish to refer to the income tax bracket for reference:
For people like me that is lazy... you might wish to download the income tax calculator for YA2018 here from IRAS.

With the inception of my SRS Account, I've made my first contribution of $1 to this account. Given the statutory retirement age today at 62 year old, this will also mean that regardless if the government decided to push the statutory retirement age further, I will not be enrolled into that situation. 

So, even if the retirement age is raised, it will not affect anyone with an SRS account created earlier. 

Having that said, this is another factor which I'm looking at when I've created this account.

While there is a possibilities that the retirement age will be pushed down, I guess I'm fine with the numbers today at 62. 

My newly created SRS Account

The different operators charges differently for the SRS Account and it is important to take a look into it before jumping onto it. 

Below are the link for the SRS Account by different operator and charges:
- DBS Supplementary Retirement Scheme (Fees: Schedule of Charges)
- OCBC Supplementary Retirement Scheme
- UOB Supplementary Retirement Scheme (Fees: Schedule of Charges)

DBS has waived the service charges to the account, while UOB charges $2 per counter/holding quarter. There are also a list of charges that are imposed by UOB/DBS for the SRS account. 

After looking into OCBC SRS and googling for awhile, I was actually a little surprised to find out that there is no charges. Upon knowing so, I went ahead with creating one SRS with OCBC

Readers that has a SRS with OCBC, do feel free to comment on any charges that OCBC is imposing.

Creating a SRS account with OCBC is relatively easy for those with an OCBC account and has internet banking access. The account can be easily created from there.

The 2 key highlight for this account is:
- The savings of taxes upon contribution
- The savings of taxes upon withdrawal

Should anyone make a withdrawal from your SRS account before the retirement age, 100% of the sum withdrawn will be subjected to tax and a 5% withdrawal penalty will be imposed unless you're dead, bankrupted or due to medical grounds.

Hence, as a reminder, although the SRS account is a tool that could be used for reducing your income tax expenses and possibly improve your net worth. You should always consider your own position prior to acting. 

Should you have any financial obligations or restricted cash flows, it will not be wise for you to dump and lock up a fraction of your wealth in it. 

It would probably be easier for one to be reminded that the funds you've injected into the SRS account is as good as gone until you're 62 year old.  

The funds in the SRS as the name suggest is to supplement your retirement and not your current expenses. Hence, once again, it's also very important to know yourself and what you're doing. 

The SRS Funds can be used to invest in: 
- Buying Shares
- Bonds
- Unit Trusts
- Fixed Deposits
- Insurances

You will not be able to invest in real estates through the funds in your SRS Account and life insurances (except for single premium product

Once again, the monies inside although locked up, they are ultimately your hard-earned monies. We will still have to be responsible for our own monies as nobody elses would be for us.  

Same applies to CPFIS OA/SA Account. All this funds here are still our hard-earned monies. Just because I'm not able to spend it tomorrow or the day after, it does not represent that we should punt with it.

It is still important for us to act diligently on our own monies. 
There is many options available around and today, I'm exploring one of them.  

My chargable income for this year, will not be that significant for me to touch on the SRS yet. However, having the SRS account created, I have another avenue to tap on. 

For now, I'll be making use of another favourite platform of mine to assist me. 

Any guesses? :)

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  1. Replies
    1. Hi Uncle CW,

      Alamak. Now my turn!

      Doing some back of envelope calculation.. I might need to see pay some income tax the coming year.

      But for now, I did not exceed the bracket that will require this second tool to reduce on income tax relief portion.. So you're actually right.. LOL

      But, I'm pretty much enjoying on the assurance that the statutory retirement age for my SRS account stands at 62 year old.

      Don't know if govt going to ever raise it or that I will ever earn such a high income.

      But if it comes true, maybe I'm safe.. Scared heart cannot take it next time.. hahaha

  2. Hi SD,

    Here is my guess for "Favourite platform", either SSB or CPF SA?

  3. Woah. I don't have SRS and TBH, I don't even find it attractive...

    1. Hi KPO,

      I personally feel that the interest offered by the SRS operator is really pathetic. Unless with a bigger warchest and longer duration, the funds inside will not be able capitalize too much on the investment front. More importantly, the returns offered are far off from our dear CPF system. My income bracket today is too low to save alot from it. But I’m sure those that belong to the high tax income bracket workers will enjoy the SRS account quite a fair bit.

      With fingers and toes crossed, I do hope that by locking the age today. I will be able to make use of the SRS account in the future, should I ever happen to fortunately belong to the higher income group.

      My situation today is just like the excel sheet you made earlier. To enjoy 100% tax savings, a big chunk is going into the SRS account. Low salaried worker here haha.