At what income bracket does it become worth topping up SA / SRS, to enjoy tax savings? I'm 26, earning $28,000 and paying tax of $160 a year – not sure if that's worth? - Seedly

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Asked by Anonymous

Asked on 22 Nov 2018

At what income bracket does it become worth topping up SA / SRS, to enjoy tax savings? I'm 26, earning $28,000 and paying tax of $160 a year – not sure if that's worth?

As a young adult, should we just pay the few hundreds as tax to the government, but that's a cash outflow? Or should we invest more money into SA/SRS to get a small tax relief, but lock up that money (which could've been invested) until near retirement? At what annual income / age range does it start making sense for us to top up SA / SRS?

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Loh Tat Tian
Loh Tat Tian
Top Contributor

Top Contributor (Jan)

Level 6. Master
Updated on 07 Jun 2019

My opinion...

If you have spare cash for investment, i would say to try to grab the lower hanging fruits first. Plan for CPF-SA top up first till you reach a combined amount of $60,000 (inclusive of OA, MA, SA) to take advantage of the extra 1% interest (5% for SA, 3.5% for OA). This will likely form the bond component for your retirement.

Once this is in place, consider putting to SRS where you have more flexibility to invest in SGX stocks, withdrawal (with a penalty of 5% before statutory retirement age of 62 currently, or first $400k (since 50% will be tax deductible) no penalty after withdrawal for a period of 10 years. Of course, you will need to learn more about investing.

The tax-relief will start to make a difference only once your assessable income is above $80,000 (where the tax rate is at 11.5%). Meaning to say, every $1000 put into SRS/RSTU will reduce your tax payable by $115.00

At 7% (between $40,000 to $80,000), it is debatable because every $1,000 you put in will reduce your tax payable by $70.00.

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Serene Toh
Serene Toh

17 May 2019

Interesting concept of considering CPF as "Bond" component. I was worrying over my portfolio allocation recently, as my investments only consists of 10% Bond (excluding CPF & Saving), which would be quite risky for my age group.
Loh Tat Tian
Loh Tat Tian

17 May 2019

If your "Bond" CPF is able to generate 4% returns, then wouldn't it constitute as a long term pepetual Bond? That's why it makes sense (especially when SA/MA is at overflowing limit), which also allows you to effectively use your OA for housing payment, freeing more cash for better investment opportunity. Once the investment gain is realised, you can top up OA back (at no CPF opportunity cost) for RA account.
Yixiong Chang
Yixiong Chang
Top Contributor

Top Contributor (Dec)

Level 5. Genius
Answered on 22 Nov 2018

Your tax bracket is 2%, so your effective tax savings is only 2% of what u topped up. But topping up the SA is still a good retirement planning savings. As it offers 4% guaranteed return. additional 1% if u hv less than $60k combined balance.

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I would not recommend topping up your SA as you may need the cash in the near future. I would recommend using that spare cash for savings/investments instead in an instrument that has the allows for growth (to get returns higher than inflation) & liquidity should you need to use the money.

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Brandan Chen
Brandan Chen, Financial Planner at Manulife Singapore

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Level 5. Genius
Answered on 22 Nov 2018

It really depends on your own personal cashflow, and how you would utlise the money in your SRS. At $28,000/yr, Every $100 of SRS top-up will reduce your tax by $2.

For SRS, it would make more sense to top up when the income level is more than S$80,000.

As for SA, perhaps the angle you should be looking at should be towards a low-risk 'investment' to your future retirement since SA returns about 4 - 5% annually depending on the amount u have in your CPF accounts.

Ultimately, look at your personal cash flow, if you have sufficient cash flow, consider topping up your SA first

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