My questions on Supplementary Retirement Scheme (SRS)

time to spend money? donate

If I have not opened an SRS account, should I?

My simple is YES (and quickly). I opened the account on the basis that I wish to lock in on the current mandatory retirement age before I can make my first withdrawal. There are signals from the government that the official retirement age could be raised. While we won't see the kind of riots and unrests in France replicated here in Singapore, personally we need to take that in consideration.

The much touted immediate benefits of tax savings from deposits into SRS would depend on your tax bracket and availability of taxable income / free cash.

The usefulness of an SRS account would also depend on the age group. During the early part of our working life, we are living in a stage of intense spendings with little of  savings ie. repaying study loans, travelling, dating, getting married, babies, home renovation, parents etc etc Thus should we need to call upon some monies for emergency reasons, your savings in SRS is an option but an expensive one (penalty of 5% and immediate taxability of amount withdrawn).

Thus you would have noticed that my recommendation to open the account is different from recommending regular amount to be deposited.

I would think twice before using the SRS account to house my investments. Please check on the service charges that the bank may levy. Given my experience with the CDP account ie. $10.70 per transaction (I think) regardless of the nature of transaction (I think), it is very expensive indeed when I am just receiving dividend.

Lorna Tan cited the example of yearly contribution of $11,475 to an SRS account for 20 years, this would translate to $2960 monthly withdrawal for 10 years ASSUMING you are able to manage your nest age to generate a return of 4% per year. Governments of the world, fund managers and insurance companies are all trying very hard to do the same, if not better.

Buyers beware, always.

Reference - Lorna Tan, "Saving a little today will go a long way", Sunday Times, Nov14, 2010.