How do you know whether you can use your SRS money to buy unit trusts? Make use of free instruments on the Internet. At fundsupermart.com, you can use the fund selector. Just select ‘SRS available’ at the ‘CPF/SRF?’ section. You will find a list of unit trusts that allow you to tap on your SRS funds. If you plan to use your CPF-OA account, you can also do the same thing. Remember that you need to have a minimum sum of $20000 from April onwards, so you may want to use part of it to invest.

Next, to find the best-performing funds, just sort out the list according to the criteria you want. You may sort according to weeks, months or years. After that, just go to your usual online trading platform to execute your trades. Make sure your account details for CPF-OA and SRS are updated at the online platform.

So far, many of the CPF-OA approved funds are not doing as well as the other funds. Hence, do make sure you make your selection carefully. If not, you may be better off putting your money in the CPF account, earning that paltry 2.5%, subject to an additional 1% interest on your first $60000 in the accounts. Only up to $20000 in your CPF-OA will receive that additional 1%. Again, with the high inflation rate, the value of your money has actually decreased. Therefore, to beat the inflation rate, your returns have to be higher.

Once you have selected the option to use your SRS or CPF-OA funds to pay for the unit trusts, you may leave it to the company to contact the agent banks (DBS, OCBC and UOB) for transactions. If your company is a CPFIS-Registered Investment Administrator (IA), then you pay less on your transactions. Remember that you have to pay additional charges on the number of transactions. Hence, you may want to consolidate your transactions to save on charges, if yours is an IA. According to Fundsupermart, it is still cheaper than if you have gone to a non-IA company.

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Just to sum up what you can do to reduce your taxes.

1. SRS – You have to be quick, because many banks stop accepting applications before the year is over. That means you can’t wait until 31st December to put your money into fixed deposit through SRS, or do other investments. You may need to print out a form from your company to certify you are working, because SRS is meant for those who are employed. You may invest up to about $11000, but remember you can’t take the money out without penalty before current retirement age. Hence, putting just a few thousand dollars would suffice to your favourite cause today.

2. Charity Donations – Charity donations will get you double tax relief, so if you are feeling generous, don’t just stuff the money into those boxes you see along the road. Make a proper donation to the charities or organisations of your choice. Get into the festive mood and do something for others.

3. For single ladies who are preparing to get married, quickly register your marriage if your partner is an NSman. However, I am not sure whether there is still time to do so before the year is over. That’s because you get tax relief simply being the wife of NSmen. Not sure whether it is because you have to help them wash their uniforms while they are doing duty for the country.

4. Get the help of tax-savvy people who knows how to decide whether certain expenses can be counted. This will help to reduce your taxes.

5. Attend courses that are relevant to your work, or to something you plan to switch to within two years. You can make claims for these. If I am not wrong, as long as you pay for the course now, even if you attend it next year, you still can claim it for this year.

Sarah Tan – Singapore Profit

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While the reasons for increasing the Minimum Sum are sound, we should remake our plans for the future. Currently, my endowments payments and my CPF withdrawals are timed in such a way that I would be getting a neat sum of money every few years. With the change in the minimum age, I would require another sum of money of money to come in when I am around 62 and before I reach 65. The SRS will come in useful as you can withdraw money from it over a span of ten years, lasting me until 72.

The Minimum Sum is currently set to increase to $120000, and that is before inflation is taken into account. If we fail to meet the Minimum Sum, that means we can only take out $5000 from our CPF. According to the CPF website, there are three ways to invest this sum. First, we can buy annuities with a participating insurance company. Second we can take the money out and put at a participating bank. Third, we can leave it with CPF and get it after we turn 65.

You may apply for exemption from the Minimum Sum Scheme if you have bought your own life annuity using cash. The monthly payment you receive from the life annuity should be equal or above the Minimum Sum monthly payment.

This is something you can consider by buying your own life annuity.

According to the government, quite a significant number of people live beyond 85 years. The government would look into getting the people buy compulsory annuities. This money would be paid out. Depending on this is not enough for most of us, since with inflation, the amount of money we require post-retirement is even more than now.

Since the boundary for to get our money is constantly being pushed back, we need to have more sources of income. Apart from savings, endowment plans, insurance and other investments are necessary, because we will never know when the government will change the ruling (again). It is wise to receive the money in stages, so that we do not have to worry about running out of money after a certain age. I’ve once read that this lady will have policies maturing every few years all the way until she is 85 years old. That’s some food for thought.
 

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Jeff asks: Hi Sarah, in view of the recent PM’s national day rally speech, any idea if the SRS withdrawal age (i.e. 62yo) will be similarly postponed like the CPF withdrawal ?

Let’s take a look at what PM Lee said first. From CNA,
Legislation
a.             Clear signal to employers and the public that we are serious
b.             Some ask – why not just pass a law to raise the retirement age?
i.               Experience shows this will not solve the problem
ii.             Legal retirement age now 62
(1)          But only 2/3 of men are still working up to 62
(2)          1/3 have stopped earlier, despite legal retirement age
(3)          Many women stop working even earlier
iii.           Simply raising retirement age beyond 62 may discourage employers from hiring older workers
c.             Better approach – legislate for re-employment to continue working beyond 62

Based on information given by MOF regarding SRS, http://www.mof.gov.sg/taxation/withdrawalsrs.html

When can I make a withdrawal from my SRS account?
Anytime. However if you make a withdrawal before the statutory retirement age prevailing at the time of your first contribution, 100% of the sum withdrawn will be subject to tax. A 5% penalty for premature withdrawal will also be imposed.

This means to say that currently, there is no change in the SRS withdrawal age, as the current legal retirement age is 62. Hence, we can withdraw our money at the age of 62 without paying a penalty. To avoid any further changes to the retirement age in the future, we should make our first contribution soon, just in case the government decides to make changes. 

Sarah Tan – SingaporeProfit.com

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Let’s take a look at how income tax is calculated. For example, your chargeable income is $50000. It used to be $40000 the previous year. Tax on the first $40000 is $900. The additional $10000 is $850. Total income tax will be $1750. By earning $10000 more, you have to pay double the income tax of previous year.

If you put $10000 into the SRS, you could save $850 if your chargeable income is ($50000-$10000=$40000) or $1400 ($90000-$10000=$8000).

For those in a lower income tax group, $10000 may seem like a big sum. There is a lot we can do with $10000. To take this amount out, it can be rather tough for some of us. Besides, one of the disadvantages of SRS is we will not be able to touch the money until retirement. With a lower income, $10000 is a lot to fork out a year.

The good thing about SRS is we can use the money in SRS to invest. If you are currently buying unit trusts and stocks, the money in SRS can be used to invest. Your proceeds will go into SRS. This will certainly overcome the paltry returns on interest rates provided by SRS banks.

In my original computation of investing $11,475 a year (the maximum amount we can contribute to SRS), by investing SRS in an index fund which could give returns of 12% a year, the sum becomes a mind boggling $3.45 million. (3,445,397.77). Even if you have to pay income tax on $344000 a year (the money has to be withdrawn in 10 years), you will probably pay about $45000 in taxes and still have lots more left.

Now, what if you had just willingly paid the extra money in income tax?
Let’s assume you never had a pay rise, so you have chargeable income of $50000 every year. The additional $850, if invested in an ETF that returns 12% a year, will become $255,214.65. This means, you can potentially lose $255k if you don’t reduce your tax. And since most of us have the potential to earn more each year, there is a greater potential loss!

Gosh! I’m going to open a SRS account next week. There are three banks where we can open an SRS account with – DBS, UOB and OCBC.

Sarah Tan – SingaporeProfit.com

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However, I decided to take a second look at SRS. We can contribute up to S$11,475 a year (for Singapore citizens). This figure is dependent on the CFP salary ceiling. This amount could potentially bring you to the lower income tax bracket, especially if you had just exceeded by a little.

On top of that, when you withdraw the money after retirement (currently set at 62), you only have to pay tax 50% of the amount you take out. This is to be spread over ten years, so you could potentially not pay a single cent on income tax, or just very little.

Assuming you are 30 years old and if you can contribute the same amount ($11 475) for another 30 years, you should get $344250. This amount does not include interest at all. With compounding interest, it should grow even more. Based on UOB’s prevailing interest rate for SRS, it is only 0.25%. Using a financial calculator, it will be $370,285.34. This is an increase of $26,035.34. With the taxes saved, savings should be even more substantial.

Of course, with an interest rate of only 0.25%, it may not be worth contributing so much, unless you earn really a lot, and every little way to reduce income tax should be explored. How do people then make money from SRS?

You may want to check out this link on what SRS is all about.

Do you want to know how using SRS to save a few hundred dollars in income tax to make a whopping six digit $255k gain? Read Supplementary Retire Scheme (SRS): A Money Crunching Guide Part II which would be published tomorrow.

Sarah Tan – SingaporeProfit.com

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