What do you guys think of Supplementary Retirement Scheme(SRS)?

Adding on to Elijah's answer. There was another question on whether it was worth doing SRS, and I will build on my answer there.

• don't recommend women who intend to have children to have SRS as they are not likely to get much more additional tax reliefs above the Working Mother's relief.

• for others who are not entitled to reap the benefits of Working Mother's Relief, SRS is a tax deferral scheme, where you get tax relief for your contributions and get taxed on 50% of the withdrawals (over 10 years) when you can start withdrawing (62 for now, might be later in future).

• if your incremental tax rate (ie the tax rate that applies to an additional dollar of taxable income) is low (would say below 7%), you may want to consider the flexibility of keeping that cash versus enjoying that relief for locking up the contributions for many years.

• if you do feel your incremental tax rate is high, and the tax relief is decent, and you can afford not to withdraw the SRS contributions, it is something to consider (but you would have to invest it appropriately and not earn 0.1% interest rates, or buying SSBs).

If you could invest and get an average return of say more than 5% between now and your srs withdrawal age, the SRS essentially is like providing you with a discount to saving money and investing it for your retirement.

Many may recommend on the max amount of 400k (so you don't pay tax on the SRS withdrawals, assuming you withdraw 40k per yr over 10 yrs... The first 40k based on current tax rates, you pay 350 in tax).

After my last answer, I have a new insight. Imagine if your time till SRS withdrawal is say 25 years. If your incremental tax rate remains consistent at 11.5%, and you put in 10k over the 25 years, your tax relief enjoyed = 11.5% x 10k x 25, and that would be about 28.75k tax savings (before accounting for interest and compounding). With compounding of 96 monthly or 1152 per year for 25 years, this is $57,407.

Assuming tax rates don't change, and you manage to compound it @ 833.35 per mth or 10000.2 for 25 years at 5% per year, you will compound it to 498.4k over the 25 years. Let's say this amount doesn't grow further at 0% over the 10 year withdrawal period, you then plan to withdraw 50k per year over 10 years. For the first 25k taxed (50% of 50k), you pay 100 in tax, so over 10 years that would be 1,000 ==> you achieved real tax savings of about 56,407 (I know it's not exactly precisely the way I account for time value, but its more than enough to prove a point).

Let's take a more extreme example, which you still contribute 10k per year for 25 years, and by good luck, the annual rate of return is 12%. 96 x 12 over 25 years at 12% equals 182k of effective tax savings after compounding. By the same token, 833.35 x 12 for 25 years @ 12% pa = 1.58 million. If you plan to withdraw 160k per year over ten years. The tax payable on 80k (50% of 160k) is 3350 based on current rates, and over ten years is 33,500. Still seems like a good deal.

SRS is not a product, but rather a voluntary scheme that is aimed at helping people address their needs in retirement.

The key things you need to take note are:

• You can open an SRS account online with a local bank. Just put a dollar in.
• Contributing to your SRS will 'lock in' your future withdrawal age at the prevailing retirement age when you contribute (currently age 62)
• Contributions are voluntary, subject to a cap (Cap amount is depending on whether you are SC/PR or foreigner)
• Your SRS contribution will reduce your income tax as it confers tax relief. If you don't have any income tax or low income tax to pay, it may not be worth contributing. If you have a lot of reliefs (I see this often with working mothers), it may also not be worth contributing too
• Your SRS monies can be used to invest (please don't leave it lying in the bank) in various asset classes, and you will need to know the pros and cons of each asset class to see what suits you, along with how this ties into your overall retirement planning.
• Your SRS can be withdrawn prematurely but with a penalty, unless under exceptional circumstances. Foreigners may withdraw if they leave Singapore for at least 10 years.
• After you reach retirement age, your first withdrawal will trigger a 10 year period whereby you should withdrawal your SRS holdings by the end of this 10 year period
• Half of your withdrawal is considered your income stream (still subjected to income tax calculations). If you don't withdraw, you can keep your assets in the SRS account.

A complete analysis of SRS and how it fits into your financial situation will be possible if you are able to provide more information, or if you sit down with an advisor to discuss. But those key points should provide you with some information to start. Due to practical limitations and to prevent this answer from turning into a novel, I can't elaborate on all the points above in writing.

Incidentally, I am speaking at a seminar to spread awareness on SRS in late Oct, and you can register for a seat in the link on my Seedly profile, should you wish to hear more.