If you are new or curious about Supplementary Retirement Account (SRS), and how it can help in your retirement and achieve significant savings while you are still working, this post may help you.
First up, this video sums up what SRS is all about:
If you have no time to watch the video, here are the main points:
1. The Basics of SRS
SRS is a voluntary scheme designed to encourage individuals to save for retirement. While the ultimate goal is long-term saving, the immediate incentive is a dollar-for-dollar tax relief on contributions.
- Yearly Contribution Limits:
- Singaporeans and PRs: $15,300.
- Foreigners: $35,700
- Flexibility: There is no commitment to top up every year; you only receive relief for the years you contribute.
- Timing: Contributions made this year will only reflect in your tax bill for the following year [].
2. Tax Savings Potential
The amount you save depends on your income tax bracket. The video illustrates this with a few examples:
- High Earners (15% – 20% bracket): A $15,300 contribution can save you between $2,295 and $3,060 in taxes.
- Therefore, if you contribute $15,300 annually for 26 years to reach almost $400,000 in SRS monies, you can save close to $80,000 worth of tax rebates.
- Middle Earners (7% bracket): While the absolute saving is lower (approx. $1,071), it can represent nearly one-third of your total tax bill.
3. Investment Options
Unlike CPF, which has a guaranteed base interest rate, funds left idle in an SRS account earn only 0.05% interest []. To combat inflation, the video suggests investing SRS funds in:
- Singapore-listed stocks (SGX), REITs, and ETFs.
- T-bills, Singapore Savings Bonds (SSB), and Fixed Deposits.
- Robo-advisors (e.g., Endowus, StashAway).
- Annuities and Unit Trusts.
4. Withdrawal Rules and Penalties
Withdrawals are governed by specific rules to ensure the funds are used for retirement:
- Statutory Retirement Age: You can withdraw without penalty once you reach the retirement age applicable when you opened the account (currently 63).
- The 10-Year Window: Once you make your first penalty-free withdrawal, you have 10 years to empty the account.
- Tax on Withdrawals: Only 50% of the amount withdrawn at retirement is subject to income tax.
- Early Withdrawal Penalty: If you withdraw before the retirement age, 100% of the amount is taxed, and there is an additional 5% penalty.
- One-Way Rule: Once you begin withdrawing from your SRS account, you can no longer contribute to it for tax relief.
Summary: SRS is a powerful tool for reducing your chargeable income while building a retirement nest egg. However, because of the low base interest rate and strict withdrawal rules, it requires an active investment strategy and careful long-term planning.
The SRS Withdrawal Strategy
Since the SRS withdrawal window is exactly 10 years and only 50% of the withdrawn amount is taxable, the most common goal is to stay within the $20,000 tax-free threshold (the amount of personal income a Singapore resident can earn before paying any income tax).
Here is the most common strategy used to maximize tax savings:
1. The “Zero-Tax” Withdrawal Strategy
If you have no other sources of taxable income (like a salary or rental income) during your retirement years, you can withdraw $40,000 per year from your SRS account for 10 years.
- Calculation: 50% of $40,000 = $20,000.
- Result: Since your taxable income is only $20,000, your tax bill is $0.
- Total Tax-Free Extraction: Over 10 years, you can pull out $400,000 completely tax-free.
2. The “Staggered” or “Ladder” Strategy
If your SRS balance is much larger than $400,000, withdrawing only $40k a year might leave a large lump sum at the end of the 10th year, which would be heavily taxed. In this case, investors “ladder” their withdrawals:
- Years 1-7: Withdraw $40,000 to keep the tax at zero.
- Years 8-10: Slightly increase withdrawals (e.g., $60,000). While you will pay some tax on the amount above the $20k taxable threshold, the tax rate for the next bracket (the first $10,000 above $20k) is very low (currently 2%).
3. The “Portfolio Rebalancing” Strategy
Because the 10-year clock starts the moment you make your first penalty-free withdrawal, many retirees do not withdraw all their funds as cash.
- They withdraw a portion as “Withdrawal-in-kind.” This means moving stocks or ETFs from the SRS account to a private brokerage account without selling them.
- This counts as a withdrawal for tax purposes (valued at the market price that day), but allows the assets to continue growing in a private account if the market is currently down.
4. Maximizing the “10-Year Clock”
To maximize the time your money stays invested, many follow these timing rules:
- The First Withdrawal: Make the very first withdrawal as late as possible in the year you turn 63 (or your applicable retirement age) to keep the funds growing in the tax-sheltered environment for longer.
- The Final Emptying: Any balance remaining at the end of the 10th year is deemed withdrawn automatically. To avoid a massive tax hit in Year 10, ensure the account is being emptied progressively rather than waiting for the “deemed withdrawal.”
Summary Table: Tax Impact of Annual SRS Withdrawals
| Annual Withdrawal | 50% Taxable Amount | Estimated Income Tax (Standard Rates) |
| $40,000 | $20,000 | $0 |
| $60,000 | $30,000 | $200 |
| $80,000 | $40,000 | $550 |
Crucial Note: If you are still working part-time or have taxable rental income, that income is added to your “50% taxable SRS amount.” In that case, you should withdraw less from your SRS to avoid being pushed into a higher tax bracket.
Concluding Thoughts
The SRS scheme, when used in a right way, can help us save up tens of thousands of savings through tax relief, while we are working or having an active income. It also allows us to have another source of income when we retire, so it is a double win situation. However, you need to understand how the scheme works to make sure it works for you and avoid paying more taxes when you are ready to withdraw from SRS.
For further read, I have shared in this article why I have started by SRS account at 43 and how it is part of my 3-stage retirement plan:
Why I’m Maxing Out My SRS with $15k This Year (And My 3-Stage Retirement Blueprint)
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