Should You Contribute To SRS?

Supplementary Retirement Scheme is a scheme to encourage Singaporeans to save and invest for old age. However, unlike what the banks and articles tell you, in some cases, you would be better off not contributing to SRS. In this video, I explain why. Enjoy!

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0:00 - Introduction

0:28 - How does SRS work?
You do not have to pay tax on whatever you contribute into SRS right now. However there’s a cap, Singaporeans and PR can contribute up to $15,300; foreigners $35,700. The higher you earn the more you will save on taxes by contributing to SRS.

You can withdraw from SRS anytime, but if you do that before 62 years old, you will have to pay 5% penalty and tax on whatever you have withdrawn. On the other hand, if you withdraw at 62 years old, you are only tax 50% of the withdrawn amount.

2:46 - What can your money do in SRS?
Your money in SRS will earn 0.05% per annum. The return is very bad, but many people are doing that.
https://www.mof.gov.sg/docs/default-source/mof-for/individuals/srs/compiled-srs-statistics-2020.pdf

Don’t do that… Instead invest your SRS money where you can get a much higher return. But same as CPF investment scheme, SRS has a list of stuff which you can only invest in: stocks listed in SGX, ETFs, bonds, regular shares savings, RoboAdvisors, Mutual funds, insurance products, fixed deposits, etc. As you can see, you can use SRS to invest in a lot of stuff. Some of which like ETF and stocks that can deliver 5% returns or more.

4:47 - Should you contribute to SRS?
1. Future tax rate. There’s no guarantee that the Singapore tax rate will remain the same in 30 years time. There has been talks in the past that the government should raise income tax for the rich.
https://www.todayonline.com/singapore/singapore-will-ensure-higher-earners-pay-more-tax-indranee
https://www.straitstimes.com/politics/budget-debate-heng-swee-keat-on-why-the-gst-hike-cannot-be-scrapped

So even if you save on income tax by contributing to SRS now, you potentially have to pay more tax when you withdraw from SRS. But if your tax rate is very high now, you will have a much higher buffer for future tax increase, and wouldn’t be penalized as hard if the government raised the taxes in the future.

2. Investment choices. You won’t have access to US stocks or cryptocurrency. As we all know, STI ETF has been going sideways since 10 years ago, safe good stocks in Singapore will give a steady return, but nothing fantastic. However if you invest in good oversea stocks, you will earn so much more, like Tesla or ARKK. It will be much more than the tax you’ll have to pay. On top of that, Singapore does not have any capital gains tax, whatever you have earned on your investment is entirely yours.

On the other hand, if you want a slow but safe and steady investment style, like investing in Singapore blue chips companies and get a 5% dividend every year, you can just contribute to SRS instead.

Check out my stock portfolio for some investing ideas: https://youtu.be/_blfAyVY4D4

3. Retirement age. There’s a new trend called Financial Independence Retire Early, FIRE. These people will save and invest as much as they can so they can achieve financial independence and retire early. As long as your passive income is higher than your expense, you no longer need to work for money, because your money are now working for you. If you are a person who is also aiming to retire in your 30s or 40s, it wouldn’t make sense to contribute to SRS, because you won’t have access to your money until you are 62 years old.

9:08 - Why you should open a SRS account
The current SRS withdrawal age is 62 years old. If you just open the SRS account and transfer $1 in, you get to lock in the withdrawal age. Otherwise there’s a chance that the government could possibly increase the retirement age in the future, then you can’t withdraw at 62 years old anymore.

Видео Should You Contribute To SRS? канала Kelvin Learns Investing