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SRS - Another Retirement Egg


Cheekg98
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Enjoy perks growing your nest egg with SRS

 

An investor has the added flexibility of being able to withdraw his SRS savings - if he needs cash in a hurry.

Goh Eng Yeow

 

Tue, Jun 10, 2008

The Sunday Times

 

Over the years, I have seen many millionaires literally turn into paupers overnight when their careers or businesses go belly-up.

 

And when they were down on their luck, it was painful for them to have to endure fresh humiliations like friends and relatives suddenly avoiding them like the plague for fear of having to provide them with some form of financial assistance.

 

It drives home a harsh truth which my father used to drum into me: There is no easy way to make money. When you make some money, you make sure that you also save some for that proverbial rainy day which you hope will never come.

 

WHAT IS SRS?

The Supplementary Retirement Scheme (SRS) offers an incentive to save.

 

 

Cash invested into an SRS account is tax-free.

 

 

The most a Singaporean can contribute to his SRS account is $11,475 a year.

 

 

With a taxable income of $100,000 and $10,000 put in the SRS account, one can enjoy tax savings of $1,400.

 

But actually building a nest egg is another matter altogether. It takes a lot of discipline.

 

There are simply too many temptations to spend - buy a new cellphone, go on a nice Mediterranean cruise holiday, or even splurge on a brand-new car.

 

And incentives to save are few and far between.

 

Fortunately, I learnt of a programme - the Supplementary Retirement Scheme (SRS) - which offers me some incentives to squirrel away some money each year.

 

Let me explain.

 

Few Singaporeans have heard of the SRS even though the scheme was established in 2001.

 

In fact, the SRS was created to complement the Central Provident Fund (CPF) by giving wage earners like myself an incentive to save for retirement.

 

Like CPF contributions, cash invested in an SRS account is tax- free. Currently, the maximum which a Singaporean can put into his SRS account is $11,475 a year.

 

This means if, say, he has a taxable income of $100,000 and he puts away $10,000 in his SRS account, he can enjoy tax savings of $1,400. It is a sum not to be sneezed at, if you are in the high income bracket.

 

To ensure that the doors are flung wide open to those who want to enter the scheme, a Singaporean can open his SRS account at any branch of DBS Bank, OCBC Bank or United Overseas Bank.

 

Better still, a SRS account holder does not have to keep the money locked up as a cash deposit.

 

He can use the money in the SRS account to buy unit trusts, insurance policies or stocks listed on the Singapore Exchange.

 

And unlike CPF contributions which are locked in until a person turns 55, an investor has the added flexibility of being able to withdraw his SRS savings - if he needs cash in a hurry.

 

The only catch is that any early withdrawal of cash from an SRS account will attract a penalty fee of 5 per cent. The sum withdrawn is also considered as part of the investor's taxable income for that year.

 

Once the mandatory retirement age is reached, the 5 per cent penalty no longer applies and only half the sum withdrawn in any year would be subject to income tax.

 

By one estimate, anyone earning more than $60,000 a year will reap tax savings if they set aside some money in an SRS account.

 

That works out to about one- third of Singapore's 750,000 tax payers. But it is surprising to learn that in the seven years since the scheme was implemented, only 41,000 SRS accounts have been opened.

 

This means that another 200,000 Singaporeans or more could have enjoyed some tax savings if they are made aware of the SRS and take advantage of it.

 

What went wrong? Many have blamed a lack of publicity for the scheme's failure to take off.

 

They note that after an initial spurt of enthusiasm, banks have almost stopped promoting the SRS, despite the benefits they offer customers, both in tax savings and possible capital growth.

 

Others blame the hefty penalty for early withdrawal. Better to skip the tax savings and keep your savings in an ordinary bank account where you don't have to pay any charges if you need to withdraw the money in a hurry, they say.

 

Yet, others have blamed unscrupulous financial advisers for taking advantage of the scheme to lure unwary investors into buying complex financial products which they don't understand.

 

One friend complained that, immediately after he had opened his SRS account with a local bank, he was lured by the bank's relationship manager into placing the money in a structured deposit.

 

If he were to redeem those structured deposits today, his losses would be substantially greater than the tax savings he had initially enjoyed.

 

My own experience with SRS has been quite a happy one though. Over the past six years, I have reaped substantial tax savings from putting away some money into the SRS each year.

 

And the discipline imposed from having to hold the money for such a long period of time has forced me to develop a long-term view on all my investments - not just those kept in my SRS account.

 

Rather than chase after every flavour-of-the-day share, I now take a critical look at each potential investment.

 

Some questions I now regularly ask myself: Do I know the business of the company I am buying into? Do I like the management running it? Can I see myself holding the stock five to 10 years from now?

 

While squirrelling money into an SRS account may not turn me into a millionaire, it has at least made me a disciplined investor.

 

That is how we should aim to grow our retirement nest egg as working professionals.

 

This article was first published in The Sunday Times on Jun 8, 2008

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Turbocharged

seriously, i dont really know much about this SRS ..care to enlighten me on why it's BS??... i dont want to read it up from their web sites since the fine print normally very well hidden under the carpet and the rosy flowers are always on the front page .... [:p]

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SRS = sucking reserve of singapore. probably another bank rescuing venture.

 

y not just raise annuity to 91 yr old.

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why... our SWF is low liao si bo... need to chut new pattern...

 

I like the sentence they put it ... "It takes a lot of discipline"...

 

save the trouble, just send the temashake investors and honcho to b counselled just like addicted losers, i mean addicted gamblers.

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It makes sense if you earn 100k a year cos it will reduce your tax liability by $1400 and the interest rate is higher than any FD. Of course its has to be money you dont need.

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(edited)

http://www.uobgroup.com/pages/resources/ra...sgd_deposit.htm

 

The interest rate for SRS account.. is 0.125% at UOB. Dun think is that impressive. Is pegged to CPF IA account rate. Only way to earn more is to take risk and invest in shares.

 

SRS is a tax defferal scheme, where u defer paying of the tax to the point of withdrawal when one retire. The argument is that 50% of withdrawal is treated as taxable income then. So.. if old age withdraw 40K annually, 50% = 20K.. within zero tax bracket.. then dun have to pay any tax.

Edited by Yoongf
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i think u mistaken what is SRS ... pple usually wouldnt put their $$$ in SRS account to earn bank interest. they will either invest in unit trust or shares ... thumbsup.gifthumbsup.gif

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