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And let your saving compound at 7% rate of return you beat inflation and accumulate REAL wealth which unfortunately many only preserve at best and worse many many have lost to inflation and get negative return, ie they are no better off than before and maybe even worse off like saving in wholelife insurance or endowment.Reply
A thought suddenly struck me while reading your article.. correct me if I’m wrong. Would that make SRS a better alternative than an insurance plan? Ie to save for retirement, use CPF and SRS, and buy term insurance for risk management. Your thoughts?Reply
SRS is just an instrument for tax deferment. With the money inside SRS, you can actually use it to buy various investment/insurance products that can meet your needs.
For example, if you already planned to buy an single premium insurance policy as part of your retirement planning (which you will only need after retirement), you can contribute to SRS before buying that product. Of course, that product has to be SRS approved for it to work.
I generally don’t use a whole life plan to accumulate savings for retirement.Reply
I would say that most Singaporeans who contribute to SRS are mainly using it as a Tax-Saving Device. Their SRS money are mainly put into very low-yielding FDs, money market, and bond funds (preferably S’pore bond funds) and structured deposits.
Very few SRS contributors will be able to invest and achieve a compounded return of 7% or even 6% over 30-40 years. Hence the amount they withdraw each year over 10 years will likely not attract much income tax, if any at all.
As for future tax regime in 30, 40 years, even the forecaster extraordinaire also cannot predict. If policy is still sama-sama then probably first $50K income not-taxable. If policy becomes like some western countries where minimum 30% tax even on the first $1K income, then something major has happened in S’pore liao.Reply
I contribute to SRS. My only concern is when I make withdrawal at age 62, how much tax would I be paying? Rules may change over a period of years.Reply
I must stress here that SRS is not intended as tax saving scheme.It is intended to incentivise saving. As all schemes they favour the rich and that is why the SRS formula, like the CPF contribution formula, was revised into a flat one and anyone who has $11750 or less can save in it. It mustn’t be touted as a tax saving scheme only without the caveat that if one has liquidity problem it is not for him or her.
In its original form it was exploited by the rich. it is still exploited by the rich but with a limit. Like its cousin the original CPF contribution scheme was exploited and abused by the rich.Now the contribution has been capped
It will NOT benefit everyone , so don’t make it as if it is tax saving planning tool.
Yes, the caveat is liquidity which I have mentioned upfront.Reply
I view SRS as another way to set aside some cash meant for retirement. Imagine each year I put aside 10k, after 15 years, it would be a tidy sum of 150k for retirement but not forgetting inflation.Reply