The Supplementary Retirement Scheme (SRS) encourages us to save more for our retirement. While we already have CPF savings – which we can grow through both mandatory contributions from our salary and optional top-ups – the SRS is a purely voluntary scheme.
There are two main benefits of contributing to our SRS account. Firstly, we receive annual dollar-for-dollar tax relief on up to $15,300 for Singaporeans and PRs, and up to $35,700 for foreigners working in Singapore. This is also the maximum we can contribute to our SRS each year.
The SRS scheme is also flexible in that we can contribute as much or as little as we want, up to the annual cap. There is no requirement to contribute regularly – we can do so whenever we want. This can help us with income tax planning purposes. We may want to contribute an amount that puts us into a lower income tax bracket in certain years, and not in other years.
Read Also: Complete Guide To Personal Income Tax Brackets In Singapore
You Have To Invest Your SRS To Grow Your Funds
In order to grow our SRS contributions, we have to invest it. This is unlike making a CPF contribution, which automatically earns a return of between 2.5% to 4.0% per year.
If we don’t invest our SRS funds, we will only earn a negligible bank interest rate. For those who don’t have the financial knowledge or are not keen to invest on our own, we can use a robo-advisory platform like Endowus to help invest our SRS savings. With rising interest rates, we can also opt to buy treasury bills (T-bills), which is currently paying close to a 4% interest return, or the Singapore Savings Bonds (SSB), which is paying slightly above 3.0% per annum over 10 years.
The point of opening our SRS account is to see it grow for your retirement adequacy. However, as our contributions accumulate and investments grow, we need to start planning for withdrawals as well. Without proper planning, we may be left with a hefty tax bill in our senior years.
Read Also: 10 Investments You Can Make With Your Supplementary Retirement Scheme (SRS) Account
Restrictions On Your SRS Withdrawals
While the SRS is a useful tool to build a bigger retirement nest egg, we need to note some of the restrictions on making withdrawals. This will also provide a guide on maximising the scheme for ourselves.
#1 Withdrawals Before Your Statutory Retirement Age Incur Penalties
SRS contributions are reversible. We can withdraw any amount at any time we wish. However, there is a 5% penalty on withdrawals (and 100% tax obligation on withdrawals) if we withdrawals before reaching the statutory retirement age prevailing at the time of our first SRS contribution.
The current statutory retirement age is 63, but this is set to increase to 65 by about 2030. So, it will make sense to start your SRS account now even if you don’t intend to use it immediately. This will lock in our “prevailing statutory retirement age” at 63. If we ever decide to start using the SRS more seriously, we have the flexibility to start withdrawing at an earlier age.
Note that the statutory retirement age in Singapore has already increased from 62 to 63 from 1 July 2022.
Read Also: CPF Top-Ups VS SRS Top-Ups: Which Should You Choose?
#2 Only Half Your Withdrawals Will Be Subject To Income Tax
While we receive dollar-for-dollar tax relief on our SRS contributions today, our tax responsibilities on the contributions do not disappear. It is simply deferred to our senior years, at a 50% tax concession rate. I.e. only 50% of any SRS withdrawals that we make after our statutory retirement age will be subjected to income tax.
For example, if we withdraw $40,000 in a year during our retirement, we will have to pay income tax on $20,000. If this is our only source of income, then we may not end up paying any income tax. However, we may still have to pay income tax if we have other forms of income, that we need to pay income tax on.
When considering this, it’s important to note that we will be taxed on our entire SRS savings, which includes both our actual SRS contributions and any investment returns that we generate over the years. Thus, if our investments grow a lot, we may have a hefty tax bill waiting for us. This is a great “problem” to have though.
#3 You Have A 10-Year Withdrawal Period
We can start withdrawing our SRS funds without penalties and at the 50% tax concession rate after our statutory retirement age.
There’s no fixed starting period as well – i.e. we don’t have to start withdrawing at 62, 63 or 65 or 70 or at all. However, once we make our first SRS withdrawal, we have a 10-year withdrawal period. At the end of this window, all our SRS savings will be automatically withdrawn and we will have to pay income tax on 50% of the lump sum.
#4 You Cannot Make More SRS Contributions Following Your First Withdrawal At or After Your Statutory Retirement Age
We can continue making SRS contributions even after we pass our statutory retirement age, as long as we do not make withdrawals.
Withdrawals made before our statutory retirement age do not count.
Making Tactical Decisions On Your Withdrawals
Understanding these restrictions will prepare us to better plan our withdrawals so we maximise tax savings on our SRS account. Here are some ways we should plan our SRS withdrawals to potentially make the best use of our tax savings.
#1 Only Make SRS Withdrawals After Reaching The Statutory Retirement Age
This is pretty straightforward. Any amounts that we withdraw from our SRS before hitting the statutory retirement age will incur a 5% penalty and be taxed at the 100% rate.
If we want to be able to withdraw as early as possible, then funding our SRS account, even if it’s just $1, makes sense. Those who missed the 1 July 2022 deadline to open our SRS account have to follow the new statutory retirement age – which is 63-years-old. This is on track to increase to 65 by about 2030.
#2 Only Withdraw From SRS When You Need It For Retirement Income
As the SRS defers some tax liabilities to our senior years rather than eliminate it, we need to think about the best time to make withdrawals. If we’re still earning an income that can pay for our daily living expenses, there’s no need to rush to withdraw our SRS funds just because we’ve reached our statutory retirement age.
Ideally, we would want only start making withdrawals from our SRS account once we stop working – and do not have a chargeable income.
#3 Withdrawing $40,000 A Year For 10 Years
In Singapore, we are not required to pay any tax on the first $20,000 of chargeable income. As only 50% of our SRS withdrawals will be considered chargeable income, we can withdraw up to $40,000 a year without having to pay any income tax. With certain tax deductions, we can even withdraw slightly more than $40,000.
We also have a 10-year withdrawal period for our SRS balances. Any balance in our SRS account “is deemed to be withdrawn immediately after the end of the 10-year withdrawal period”. If we have over $400,000 ($40,000 x 10 years) in our SRS account, we may have to pay some taxes on our withdrawals at the end of our 10-year window.
For example, if we contributed $5,000 to our SRS account each year for 33 years (i.e. from 30 to 63), and earned an interest of 6% per annum, we would accumulate close to $485,000 by the time we reach our retirement age. This means we would have to incur some income tax during our withdrawal phase.
This also means that if we are able to maximise our tax deductions, beyond the first $20,000 of income, each year, we can end up saving a hefty amount on our tax bill.
Read Also: Why Topping Up Your SRS Account Without Investing Doesn’t Help Your Retirement Adequacy
#4 Make Our First Withdrawal On Any 1 January
This hasn’t really been tested, and we may be completely wrong, but it’s something we think may happen based on IRAS’ example.
If we have slightly over the $400,000-mark in our SRS account, we could try this hack to stretch our withdrawals to an 11th year.
In the IRAS example hyperlinked above, it notes that someone who started their first withdrawal on 1 April 2020, will have their 10th and final withdrawal period ending between 1 April 2029 to 31 March 2030. IRAS also states that remaining SRS funds “is deemed to be withdrawn immediately after the end of the 10-year withdrawal period”. In their example, this looks like it falls on 1 April 2030.
If we make our first withdrawal on 1 January 2023, and have our final withdrawal period on 1 January 2031 to 31 December 2031, the “immediately after” date may fall on 1 January 2032 – giving us one additional year to stretch our withdrawals.
| Year | Period | Cumulative Amount withdrawn ($40,000 each year) |
| 1 | 1 Jan 2022 to 31 Dec 2022 | $40,000 ($40,000 per year) |
| 2 | 1 Jan 2023 to 31 Dec 2023 | $80,000 ($40,000 per year) |
| 3 | 1 Jan 2024 to 31 Dec 2024 | $120,000 ($40,000 per year) |
| 4 | 1 Jan 2025 to 31 Dec 2025 | $160,000 ($40,000 per year) |
| 5 | 1 Jan 2026 to 31 Dec 2026 | $200,000 ($40,000 per year) |
| 6 | 1 Jan 2027 to 31 Dec 2027 | $240,000 ($40,000 per year) |
| 7 | 1 Jan 2028 to 31 Dec 2028 | $280,000 ($40,000 per year) |
| 8 | 1 Jan 2029 to 31 Dec 2029 | $320,000 ($40,000 per year) |
| 9 | 1 Jan 2030 to 31 Dec 2030 | $360,000 ($40,000 per year) |
| 10 | 1 Jan 2031 to 31 Dec 2031 | $400,000 ($40,000 per year) |
| 11 | Immediately after (likely 1 Jan 2032) | $485,000 (final year only withdraw $20,000) |
For our example, having to withdraw $85,000 in the final year would incur an income tax of $725 based on current tax levels.
If we do not plan our withdrawals properly, and find that we have $200,000 left in our SRS account in the 10thyear, we may find ourselves with a tax bill of over $3,000.
#5 Liquidating Investments To Purchase An Annuity Product
If we still have a significant amount of money left in our SRS account nearing the end of our 10-year withdrawal phase, we can choose to liquidate our investments to purchase annuities provided by insurance companies.
This is because the 10-year period does not apply to investments in life annuities. This way, we continue to be able to receive payouts from our investments, while also enjoying the 50% tax concession applying throughout the duration of our life annuity – rather than be limited to the 10-year withdrawal period.
Of course, we can also choose never to make any withdrawals, and thus are not bounded by the 10-year withdrawal period. However, we have to bear in mind that our beneficiaries will only see up to $400,000 of our SRS account balances exempt from tax. The remaining funds would still be subject to taxes at 50% rate.
#6 Make A Final SRS Top-Up In The Year That We Want To Start Drawing Down
One other thing we can do is that once we stop receiving an income and want to start making SRS withdrawals, we can make a final SRS top-up during that year even though we don’t have an income. This gives us an extra $15,300 in tax deductions during the year.
This means, in the first year, we can withdraw about $70,000 and still not pay any taxes. We can also make withdrawals almost immediately after making the top-ups – so we’re not actually losing out in cashflow if we need it.
Read Also: 5 Things You Need to Know About Investing Through The Supplementary Retirement Scheme (SRS)
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This article was originally published on 19 October 2021 and updated with new information. This article contains affiliate links that help to keep the site sustainable.
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