Anonymous
Comparing SRS contribution and CPF contribution, which is better?
SRS is mostly for tax reduction, and the bank account only gives 0.5%. So if one wants to beat inflation, then they need to invest in stocks or bonds.
CPF is for both tax reductions and higher interest. Cap at 7k for tax relief and other caps like full retirement sum.
Which should I use first?
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Siow Nan
29 Sep 2019
E at NUS
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SRS gives you upfront tax savings. Any subsequent returns will depend on your risk-taking.
On the other hand, CPF earns you an annual and ongoing stream of interest (almost) guaranteed by the government. It is now at least 2.5% p.a. based on the lowest tier returns. It is extremely rare in this low-interest rate world
If your marginal (i.e. highest) income tax bracket is below 11%, there is not really much benefit to putting into SRS as CPF alone can replicate the upfront returns in 4 years and the guaranteed cumulative returns will exceed SRS thereafter.
Nonetheless, if your marginal tax bracket is higher than 11%. There is a likelihood that your CPF contribution already exceeds the annual limit (with your bonus). Hence, SRS may become the only choice. If you still have the choice between SRS and CPF, do consider the time to your retirement age to assess which one makes better sense.
The above is purely based on mathematical comparison and assumes you have faith in both schemes.
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Cedric Jamie Soh
29 Sep 2019
Director at Seniorcare.com.sg
Money in SRS does not need to stay in the bank account for 0.5%,
You can use it for stocks, unit tr...
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If you have not opened an SRS account yet, can do so now with at least 1 dollar to lock in the retirement age for withdrawal (one of the retirement hacks)
After which, if your CPF is below FRS, then a safe and almost risk-free approach is to TOP up your CPF to FRS and let the interests compound. Note TOP ups to special account are irreversible until retirement age. If to all 3 accounts, the ordinary portion can be utilised for your home mortgage.
If you are in the higher income bracket and putting in srs can help you in your tax savings, and you have the spare cash flow to do so, then feel free to TOP it up. Just remember also to use the srs to invest in safe stocks/unit trusts/regular savings plan/SSB/robo-advisors etc to achieve at least a better yield than the savings account yield. There will be some risks here but you can minimise it for sure.
In any case, if you can consider srs and if it helps you to significantly reduce your taxes, then most likely you can consider BOTH topping up CPF and SRS as an approach.