Why and where to invest your SRS savings
If you don’t have time to read through the whole article, you can check out our short version below.
Invest your Supplementary Retirement Scheme (SRS) funds for potentially higher returns.
Your investments are deposited into your SRS account, and investment gains are tax-free unless you withdraw.
Start your investment journey early to enjoy the power of compounding.
So, you have set up and started contributing to your Supplementary Retirement Scheme (SRS) account. Well done for taking the first step in building another retirement income pot!
But did you know that, if left in your SRS account, your contributions earn only about 0.05% per annum (p.a.), in line with banks’ typical savings account interest rates?
Hence, it is important to explore other investment options with your SRS monies. The good news is, there are many out there, including:
Singapore Government Securities, including Singapore Savings Bonds (SSBs)
Exchange traded funds (ETFs)
Single premium insurance products, including endowment plans. The products’ life coverage (including total and permanent disability benefits) is capped at three times of the premiums.
Here is what you need to know when investing your SRS funds.
The stocks, ETFs, SSBs, unit trusts, and other investments that you purchase will be deposited into your SRS account. Similarly, any distribution or dividend payouts and bond coupons, and proceeds from investment sales, will also be credited back into your account.
However, note that if you withdraw your SRS monies before the statutory retirement age (prevailing at the time of your first contribution), you will have to liquidate your investments before taking out the sales proceeds. Also, 100% of the amount withdrawn will be taxed and, on top of that, you will have to pay a 5% early withdrawal penalty.
Hence, it is advisable that you start withdrawing your SRS funds—including any investments and annuity plans—only upon hitting the retirement age or later. From the retirement age, you can transfer your investments out of your SRS account to, for example, your CDP account without having to liquidate them first. And they will be valued based on the market value on the date your SRS operator receives your application to withdraw the investment.
And once you withdraw them, 50% of the withdrawals will be subjected to tax. However, you can stagger your SRS withdrawals to potentially trim the taxes you have to pay.
Stock options give you the right to buy a company’s shares at a specific price. If you do exercise that right and buy the shares through your SRS account, they must be returned to your SRS account.
If you sell the shares, the proceeds must also flow back to your SRS account.
Apart from the SRS-specific investment dos and don’ts, keep in mind other general considerations before you invest.
First, start your investing journey early. The longer you invest, the more time your investments will have to compound and grow. And the SRS is arguably a good tool to instil investment discipline and a long-term investing mindset, as early withdrawals are penalised.
It is also important to identify how much risk you are willing to take, before deciding on the products to invest in. Your risk profile is determined by factors such as your age, how much emergency savings you have set aside, and your investment experience or knowledge.
In addition, understand the specific risks associated with the product before you invest. In general, equities are riskier than Singapore Savings Bonds, while unit trusts and ETFs offer more diversification than single asset classes.
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