With a third of Singaporeans leaving their monies untouched in their SRS accounts, are you guilty of being one of them?1 If so then you are potentially losing out on the chance for higher returns which could help with your retirement planning. Therefore, rather than to leave your money idle in your SRS account, why not consider using them for investment or life annuities instead. In this article, we share the 3 benefits of using SRS monies for life annuities.
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What is the Supplementary Retirement Scheme (SRS)?
A government initiative, the Supplementary Retirement Scheme (SRS) was created to help Singaporeans to save for old age. With it operating on a voluntary basis, Singaporeans can choose any amount to contribute which they can then withdraw upon retirement age. As monies put into the SRS are not taxable until they are withdrawn, this defers tax until withdrawal commences. Furthermore, as only 50 per cent of SRS monies are taxable upon withdrawal after the statutory retirement age of 62, this effectively gives you a 50 per cent tax concession.
Alternatively, your SRS monies can also be used for selected investment and/or insurance products for potential higher returns.
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#1 Grow your retirement savings
With a 5 per cent penalty and the full amount taxable in the event of an early withdrawal, it is unlikely that you will withdraw from your SRS before retirement age. However, as your SRS account only earns a mere 0.05 per cent interest rate per annum as of November 2017, leaving your money there may not be as effective in helping to grow your savings.2
Initial amount in SRS account |
SRS account at 0.05% p.a. |
Compounded at 2% p.a. |
Compounded at 4% p.a. |
$30,000 |
$30,407 |
$51,206 |
$86,501 |
$50,000 |
$50,679 |
$85,344 |
$144,168 |
$100,000 |
$101,358 |
$170,688 |
$288,336 |
*Figures shown assume a 35 year old with a compounding period of 27 years until the statutory retirement age of 62.
While your returns may be negligible with the 0.05 per cent per annum interest rate, what if you were to put your SRS monies elsewhere? With the potential for higher returns, using annuities and/or investments could help you to grow your retirement nest egg and achieve your financial goals.
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#2 Protected by the Policy Owner's Protection Scheme
With all life insurance policies protected by the Policy Owner's Protection Scheme (PPF Scheme), rest assured knowing that your money is guaranteed in the event of the failure of the insurer. While this is unlikely to happen, it provides you with a peace of mind knowing that you have 100 per cent protection for the guaranteed benefits of your policy.
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#3 For a lifetime of income
SRS allows for withdrawals to be spread over a maximum period of 10 years. However, should you wish to enjoy pay-outs for a longer period, consider annuity policies. These SRS-Approved retirement plans allows you to receive an income for life which could supplement your pay-outs from CPF Life and retirement savings.
Additionally, you may also pay less tax with an annuity policy as any remaining balance in your SRS account must be withdrawn after the 10 year period with 50 per cent of it subjected to tax. While half of your annuity income is also taxable, you may not have to pay taxes if you have no other streams of income after retiring. This is because your first $20,000 of income is exempted from tax thus allowing you to receive up to $40,000 of tax-free income a year.
(See "Comparing Annuity Policies")
Available SRS Approved Policies: |
Manulife - RetireReady (Single Premium only) NTUC Income - Guaranteed Life Annuity Tokio Marine - TM Retirement SP |
How FSMOne can help you get on track
Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan,
Available Products on FSMOne Insurance |
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment from Etiqa Insurance, Manulife, NTUC Income and Tokio Marine Life Insurance *Please check with our advisory team if the product you want is available on FSMOne Insurance |
1Source: https://www.mof.gov.sg/Portals/0/mof%20for/individuals/srs/Compiled%20SRS%20stats%20for%202016.pdf
2Source: http://www.straitstimes.com/singapore/stretching-your-dollar-with-srs
Interested to learn more? Check out these articles:
Want To Retire By 55? Here's How Annuities Can Help
The 3 Best Policies For Every Life Stage