In Singapore, the Central Provident Fund (CPF) and the Supplementary Retirement Scheme (SRS) are two key avenues for growing our retirement nest egg. While CPF is mandatory for Singaporeans and Permanent Residents (PRs), the SRS is voluntary and available to foreigners, as well as Singaporeans and PRs.
The primary benefit of topping up our SRS accounts is the tax relief it offers. Contributions to the SRS qualify for tax deductions, making it particularly beneficial for higher-income earners. The maximum SRS annual contribution limit is $15,300 for Singaporeans and PRs, and $35,700 for foreigners.
For example, if we have a chargeable income of $100,000, we would pay $5,450 in income tax for the Year of Assessment 2024, after accounting for a $200 personal income tax rebate. By contributing $10,000 to our SRS account, our tax bill would drop to $4,300, resulting in tax savings of $1,150. The savings will be even greater for those of us in higher tax brackets.
However, while tax savings are appealing, they alone are not sufficient. SRS funds left in a bank account earn a minimal interest of only 0.05%, which means their value is easily eroded by inflation.
To make the most of our SRS savings, we must invest them to grow our retirement nest egg. While investing is clearly beneficial, there are several important factors we should consider.
#1 Understanding SRS Contribution: Maximising Your Tax Savings
Let’s start at the beginning.
Not all contributions to our Supplementary Retirement Scheme (SRS) account will yield the same tax benefits. The reason is straightforward: as our salary increases, we move into a higher tax bracket, resulting in greater tax savings from our SRS contributions.
Based on Ministry of Manpower (MOM) data, the median salary for Singapore workers tends to peak between ages 40-44. While this is just an overall statistic and varies individually, the key takeaway here is that you can maximise your tax benefits when contributing to your SRS account during your higher-earning years.
While we can contribute to our SRS account at any stage, even if we are just starting our career the tax savings may be relatively modest when our income isn’t high.
For instance, with an annual chargeable income of $40,000, our income tax payable for YA2024 would be $350. A $10,000 SRS contribution would reduce this tax bill by $250, bringing it down to $100. Though this still qualifies as savings, it’s not as impactful as when our income—and thus tax bracket—is higher. Therefore, some may find it more strategic to increase their SRS contributions as their income rises.
#2 How To Make Strategic Withdrawal From Our SRS Account
While contributing to our SRS account reduces our immediate tax burden, it doesn’t mean we’ll avoid taxes entirely on these savings. The tax on SRS contributions is deferred until we start making withdrawals, typically during retirement.
SRS allows for a 10-year withdrawal window starting from the statutory retirement age at which we first contributed. During this period, we can make multiple withdrawals, with only 50% of each withdrawal amount being considered taxable income.
For instance, if we have $400,000 in our SRS account and withdraw $40,000 annually, only $20,000 will be counted as taxable income. If we have no other sources of taxable income, this withdrawal won’t incur income tax since the first $20,000 of income is taxed at 0%. By managing our withdrawals strategically within the 10-year window, we can maximize the SRS’s tax benefits while ensuring a steady income stream during retirement.
However, there is a drawback to consider. Because SRS withdrawals are subject to income tax, any investment gains—typically tax-free in Singapore—may also attract tax once withdrawn from the SRS account. While growing our SRS savings is advantageous, having an excessively large balance in the account could create a “good problem,” where we might end up paying taxes on SRS withdrawals.
#3 Our Investment Knowledge
Being eager to invest doesn’t automatically make us good investors. While it’s true that everyone should aim to invest their savings, not everyone has the necessary knowledge to do so effectively. Even those who are skilled investors may lack the time or commitment to actively manage their SRS investments over the long term, which could span several decades.
An alternative way to invest our SRS savings is by using a robo-advisor like Syfe. Syfe allows us to select portfolios that match our risk appetite and investment horizon, with the added benefit of automated rebalancing to keep our investments aligned with our goals. Robo-advisors like Syfe are designed to simplify the investment process, offering well-diversified portfolios that are consistently managed at a low cost.
#4 Your Risk Appetite & Investment Horizon As An Investor
As with all investments, our risk appetite and investment horizon matter when it comes to how we choose to invest our SRS savings.
In general, the longer our investment horizon, the greater our ability to take higher risks. This is because we have the time to ride out the volatility of the financial markets. If we have a shorter investment horizon, we should ideally take lower risks with our investment.
While our investment time horizon is crucial, our risk appetite matters as well. If we feel uncomfortable with the possibility of losing capital, even temporarily, it’s better to opt for more conservative investment options, such as bonds, fixed deposits, or low-risk funds. The goal is to strike a balance between seeking growth and maintaining peace of mind.
Ultimately, the best investment strategy for our SRS savings is one that aligns with our financial goals and comfort level.
Through a robo-advisory platform such as Syfe, we can easily invest our SRS savings into portfolios of different risk levels.
For example, if we prefer not to take much risk, we can just park our SRS savings with Syfe Cash+ Flexi (SGD), which is a portfolio that puts our savings into money market funds. At the point of this article, projected returns for the portfolio is 3.5% per annum. Pretty decent considering this is a very low risk portfolio.
If we want higher returns, we can consider investing in Syfe Income+, a portfolio that aims to provide a balance between income and capital appreciation, with monthly dividends automatically reinvested to maximise returns. As of the time of writing, yield-to-maturity of the portfolio is between 5.8-6.4%.
For those who are keen to take higher risk to grow their SRS savings, Core Equity100 invests 100% of their money in equities with the aim of capturing long-term growth by using a best-in-class, low-cost index fund. Over the past eight years, returns have been an average of 11.38% p.a.
Source: Syfe
It’s also worth highlighting that we do not need to choose one portfolio over the other. If we want, we can invest our SRS savings into all three portfolios or even switch from a higher-risk portfolio to a low-risk portfolio when we are nearing retirement.
#5 How Our SRS Portfolio Complement Our Investment Portfolio
An often-overlooked aspect of investing is considering how each portfolio aligns with the overall portfolio. When we evaluate our investments in isolation, we risk duplicating exposure and missing opportunities for diversification.
For instance, we might allocate our cash savings to higher-risk, high-return equities, while reserving our SRS portfolio for lower-risk, more stable investments. This strategy allows us to benefit from potentially higher, non-taxable returns on our cash investments, while using our SRS funds—which could be subject to tax—toward more stable returns.
Overall, this creates a well-balanced portfolio that aligns with our risk tolerance and long-term financial goals. It not only optimises our tax efficiency but also manages risk across various asset classes. By adopting this holistic approach, we can both seize growth opportunities and maintain a steady income stream, effectively supporting our retirement planning.
Enjoy The Best Of Both Worlds By Investing Our SRS Savings Through Syfe
As investors, it’s crucial to understand the tools available to maximize both our savings and investments. Utilizing the SRS for tax savings while building our retirement nest egg is a key strategy. Equally important is learning how to invest effectively with the tools at our disposal.
Robo-advisors like Syfe offer a convenient way to manage our investments, enabling us to potentially earn higher returns with minimal effort. With Syfe, we can allocate our SRS contributions into diversified portfolios aligned with our risk appetite and financial goals. Additionally, Syfe provides regular rebalancing, allowing us to adopt a long-term, hands-off approach to growing our retirement savings.
Read Also: Investing With Syfe: 7 Things You Need To Know About This Singapore’s Robo-Advisor
Syfe Promotion: Waiting over 30 years for your SRS to mature can feel like eternity. From now till 30 November, immediately qualify for a $50 cash back on every $25,000 invested in Core Equity100 or Income+ SRS portfolios.
Promo code: SRSDNS This promotion is available to both new and existing Syfe clients. Terms and conditions apply.
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