The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.
As the name suggests, the SRS is a supplementary scheme to the CPF for retirement planning. I have been contributing to SRS since 2012. Back then, I started with a $1,000 contribution. This has since increased to the maximum amount ($15,300 for YA2019) for at least the past five years. The main reason for doing so is to save on tax. As the saying goes, only death and taxes are certain. Tax is an expense which can and should be managed. If you are in the 10% marginal tax bracket, a $15,300 SRS contribution will save you $1,530 in tax per annum, an amount not to be sniffed at.
I have accumulated close to $100,000 in my SRS account, the majority of which is invested in dividend paying counters. The dividend received goes back to the SRS account resulting in a snowball effect of accumulation and investment.
The main drawback of the SRS is that contributions are irreversible. I can only draw down my SRS $ when I am 62. This is capped at $400,000 over a maximum 10 years drawdown period. Effectively, this works out to be $40,000 a year. Remember, only 50% of the withdrawals (i.e. $20,000 per year) from SRS are taxable at retirement. Given that the first $20,000 of income is not subject to tax and assuming you are happily retired and don’t have any other taxable income, this $40,000 a year for 10 years is effectively tax-free!
The SRS may not have the same attractive interest rates as the CPF. It is nonetheless attractive in its own ways – tax savings for contributions, tax-free accumulation and potential tax-free withdrawals.
The SRS works for me. I hope it works for you too.