5 Tips for Getting the Most out of Your SRS Account

The Supplementary Retirement Scheme (SRS) helps people save extra money for retirement beyond what they save in CPF. When you put money in SRS, you get tax benefits.

Singaporeans and PRs can put up to $15,300 a year, while foreigners can put up to $35,700. You can take out your SRS savings anytime, but if you do it before your retirement age, the withdrawn amount gets fully taxed and has a 5 percent penalty.

The retirement age you need to follow is the one that was in place when you first put money into your SRS. This age is now either 62 or 63. After reaching this retirement age, you can start taking money out of your SRS without any penalties.

You have 10 years to withdraw without penalties, beginning from the first time you do so without getting penalized.

Mr. Elijah Lee, a financial expert, shared five tips to help Sunday Times readers make the most of their SRS accounts.

1. Aim to align the payout period of your policies with the penalty-free, 10-year withdrawal period

When you use your SRS money to buy an annuity or endowment, there's a 10-year period where you can take out your money without any penalties. If you have a term annuity or endowment, the tax rules assume that the term annuity will be cashed in at the end of this 10-year period. At that point, 50 percent of the surrender value of the policy will be taxed.

But here's the thing: after this 10-year period, even if you keep getting payments from a term annuity, there won't be more tax to pay. If you decide you need the money after these 10 years and want to cancel the term annuity, you can talk to the company you got it from.

For life annuities, they keep paying out until the person who owns the product passes away.

If the payments from these annuities started before or during this 10-year period, the money goes into your SRS account. Only half of what you take out during this time will be taxed.

Once these 10 years are over, the payments from life annuities will come directly to you, and 50 percent of these payments will continue to be taxed.

Mr. Lee suggests timing when you start taking money from these annuities or endowments during this 10-year period to pay less tax. Even if the payments continue after these 10 years, your taxable income should be lower then, meaning less tax to pay.

2. Time your withdrawal period to coincide with the start of retirement

Once you've set up your SRS account and put in your first bit of money, any changes made to the official retirement age won't affect you. There isn't a specific time when you must start taking money out without penalties after reaching the retirement age. But, counting from the first time you take money out without getting penalized, you've got 10 years to do this without facing penalties.

For instance, if you start withdrawing money at 72, you've got a 10-year window until you're 81 without penalties. If someone keeps working past their official retirement age and only stops when they've completely retired and aren't earning anymore, they might choose to start their 10-year withdrawal period later.

Mr. Lee suggests that for those who plan to work longer after the retirement age, they might want to delay starting their 10-year withdrawal period until later when they've fully retired. This could help them save on taxes.

3. Withdraw investments during market lows

If you've put money in your SRS account by investing in things like stocks, the tax rule is that only half of what you take out will be taxed during a 10-year period.

Before 2015, if you wanted to take your investment money out of the SRS, you had to sell them and get the cash. But now, since 2015, SRS members can ask to take their investments out without selling them first. When you take them out, the value is calculated based on when you withdraw the money.

If you plan to keep these investments for a long time, one smart way to take them out is when the market is down. This means their value is lower, so you'll pay less tax on them.

Mr. Lee suggests this tactic to optimize when you withdraw your investments from the SRS.

4. Remember your other sources of taxable income such as rental income

Mr. Lee mentions that apart from the SRS savings, some people might have other sources of money that can be taxed, like money from renting out a property. It's important to think about these when planning how to take money out of the SRS. Let's say there's a retiree who's 65 years old and starting the 10-year period of taking money out of their SRS. At the same time, they're earning $60,000 each year from renting out a property, and this rental money is taxed.

Even though only half of what they take out from the SRS will be taxed, it could increase the total tax they owe because they're already paying tax on the rental income.

Mr. Lee advises people using SRS to think about all the income they have that's taxable when figuring out how to handle their money during retirement. It's a good idea to consider how long they plan to keep earning money from properties or if they might want to delay taking out money from the SRS until they're not earning as much taxable income.

5. Deploy your SRS funds

Most people keep their money in the SRS account, but the interest they earn there is very low, just 0.05 percent.

Mr. Lee suggests using this money in different ways to get more profit. Even if you're someone who doesn’t like taking big risks with money, there are safer ways to invest, like annuities or endowments. These options give reasonable profits without much risk.

But for those who are okay with taking bigger risks, there are other options like unit trusts, stocks (also called equities), and exchange-traded funds that could give more profit.

Mr. Lee advises that even if you don’t feel like the current market is good for investing, it's smart to make a plan for what you'll do with your money.

He also says that for people who don’t like taking risks, putting some of the SRS money into an endowment or annuity is still better than just leaving it without doing anything.