How to use your SRS for insurance
As we head into year-end, it is a good time to review your Supplementary Retirement Scheme (SRS) monies. That’s because SRS offers opportunities to build up your retirement nest egg with tax benefits – a chance to reduce tax burden for the current tax year if you act before the end of the year.
But that is possible only if you invest the funds you contribute to SRS. Otherwise, the funds sit there earning next to nothing.
How does SRS help you build your nest egg?
SRS contributions come with tax reliefs
Contributions to SRS are eligible for tax relief subject to a maximum of $80,000 for all tax reliefs claimed. The limit on contributions is S$15,300 for Singaporeans and Permanent Residents and S$35,700 for foreigners.
Withdrawals after the legal retirement age (currently 62) enjoy a 50% tax concession. This means that only 50% of the withdrawals are taxable. But if you make a withdrawal before you turn 62, that is taxable in full and subject to a 5% penalty.
No tax on investment capital gains
Your SRS monies can be used to purchase or invest in a range of financial products, including:
Any gains you make on your SRS Investments will automatically be deposited into your SRS account. These gains are exempt from tax until you decide to withdraw the money.
What are your options if you prefer insurance products?
In discussions of SRS and its investment options, insurance solutions are sometimes overlooked. So, we have summarised the key facts and solutions for you to make an informed decision, if you are looking into insurance products for your SRS monies.
(If your focus is investment products, this article provides more details.)
Main facts to know
- You can buy single premium insurance products with SRS
A typical example of such a single premium product is one where you pay a one-time premium, which then gathers value over time to give you a lump sum payout at maturity or a stream of income in the future, starting from a date of your choice.
- A portion of investment returns is guaranteed
Insurance products provide a unique proposition: a portion of investment returns is guaranteed, thus making them a good fit for those who prefer more conservative and steady returns.
- The life cover is capped at 3x of the single premium
Upon death or terminal illness, SRS allows withdrawal at full tax exemption up to S$400,000.
How much single premium insurance should you get?
Firstly, you set your goals:
- When do you wish to retire?
- How much “guaranteed monthly income” do you want per month?
- And over what period of time do you want that income to run?
That will determine how much you will have to pay in the single premium to achieve your goals. In return, this is what you receive:
- Future “guaranteed monthly income” streams that are guaranteed by the insurance company (not the distributor)
- In such products, there is also the possibility of additional non-guaranteed bonuses where the insurance company is doing well financially.
There are many different single premium insurance products
Within the single premium insurance space, there is a range of product options. To give you a flavour of the variety, here are some that DBS Bank offers.
Short-term endowments: These are offered in tranches, and typically require a commitment of 2-5 years. The number at the end of the name indicates which tranche it is. For instance, ‘SavvyEndowment 3’ refers to the third time it is being offered, and ‘Manulife Goal 7’ refers to the seventh time.
Returns are typically higher than the default 0.05% p.a. rate if your SRS funds are left idle. Some policies even provide the flexibility to withdraw the fixed yearly income, or accumulate them at a non-guaranteed interest rate.
It is also very convenient to start investing in them. Depending on what’s available, short-term endowment plans may even be purchased via digiBank mobile or digiBank online, and/or without the need for any health check-ups.
Longer-term endowments: These require a longer commitment of at least 5 years, and the single premium payment can be tailored according to your retirement needs.
For instance, with RetireReady Plus III you can customise:
- Your choice of retirement age;
- The amount of guaranteed monthly income or lump sum you wish to receive or withdraw upon retirement; and
- The corresponding income pay-out period (where applicable).
You can find out more about these by making an appointment with a Wealth Planning Manager, or by visiting any DBS/POSB branch.
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
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