CPF vs SRS

Having covered some ground on CPF, let us take a look at another retirement savings method known as the Supplementary Retirement Scheme (SRS). You might even confuse it with your Special Account (SA); thinking that it is quite similar in the sense that it gives you tax deductions. Here are some common beliefs and the truths behind them:

#1: SRS is actually a part of CPF.

SRS is not part of your CPF. Instead, the SRS complements your CPF.

#2: SRS is only for people above age 50.

It is never too early to think about your retirement. One only needs to be at least 18 years old to apply for SRS.

#3: Only high-income earners should apply for the SRS.

It is undeniable that the benefits of this scheme weigh more towards those in the higher income bracket. However, through this scheme, middle-income earners can contribute smaller amounts to offset their taxes.

What is the SRS? It is a government scheme operated by three local banks, where each dollar you contribute reduces your yearly taxable income; up to a cap of S$15,300 for Singaporeans. Meanwhile, whatever you contribute to the SRS can be invested in local stocks, funds, bonds and some insurance products.

In a nutshell, how you can benefit from SRS:

1. Lower Taxes and Attractive Tax Benefits

2. Invest in Low-risk Investments with Retirement Funds

When you retire and require another stream of income, you can begin to withdraw money from your SRS. However, do note that you are liable for taxes on whatever you eventually take out. This is why the scheme is ultimately a "tax-deferred" one.

Is the SRS suitable for you? As the money in the SRS is not locked up, investors who seek more financial flexibility might prefer the SRS to say, transferring OA monies or topping up cash to earn interest in their SA. However, do note that withdrawals before the statutory retirement age will incur a 5% penalty.

So, is the SRS something you should explore as part of your retirement plan, or are there better ways to optimise your strategy? Do connect with me if you would like to know more through a personalised discussion!

Reference:

https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Special-tax-schemes/Supplementary-Retirement-Scheme--SRS-/SRS-contributions/