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Top up your CPF SRS Account for Tax Relief: How to achieve FIRE in Singapore

26 Oct 2022

The CPF Supplementary Retirement Scheme (SRS) allows you to voluntarily save for retirement and complement your CPF savings. Here's how you can use it for tax relief and achieve FIRE in Singapore!

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You might have heard your friends talk about “FIRE” recently.

FIRE simply means Financial Independence, Retire Early. 

Many people have different definitions of FIRE but their approach does not deviate from a simple principle.

Save more and start investing a little. 

Today I will share with you the recently discovered Supplementary Retirement Scheme (SRS) and how I use it to achieve FIRE.

What is the CPF Supplementary Retirement Scheme (SRS)?

The CPF SRS in Singapore is a voluntary scheme which encourages individuals to save for retirement, beyond their CPF savings.

It has the following features:

  • Contributions to SRS are eligible for tax relief
  • You can invest using the funds in SRS
  • Investment returns are tax-free before withdrawal
  • Only 50% of withdrawals from SRS are taxable at retirement
  • The maximum withdrawal period is 10 years

The maximum SRS contribution each year you can contribute is $15,300 for Singapore Citizens/PR and $35,700 for foreigners. 

What is the CPF SRS interest rate?

Unlike funds in your CPF ordinary account that earn an interest rate of 2.5% per annum currently, funds in the SRS account earn an interest rate of 0.05% per annum. 

What are the benefits of the CPF Supplementary Retirement Scheme?

I see SRS as a tool to help my retirement plan. 

SRS helps me in two main ways – 

  • Saves money which would otherwise be paid in taxes 
  • Forces me to put aside a sum of money and use them for investment (otherwise the interest rate will be a just 0.05% per annum)

If you lack discipline like me, you should consider making SRS contributions and using them for investment purposes.

At least you will not be tempted to look at the stock market every night.

A lot of us say we are investing for the long term but some of us always panic whenever the market drops.

Putting in SRS helps because you cannot take out your money earlier without incurring penalties.

This forces me to put my money in until the statutory retirement age.

How much tax relief do you get with CPF Supplementary Retirement Scheme top-ups?

Let’s be honest - nobody enjoys paying taxes.

We should be responsible adults and take adequate measures to enjoy the personal income tax relief that is made available to us.

One way is through SRS. 

For example, you can contribute $10,000 to SRS and get relief of $10,000 when assessing your taxable income. 

(PS. Please note that for each Year of Assessment, there is a personal income tax relief cap of $80,000) 

Now, let us assume that we are contributing $10,000 each year. 

Let me show you how many taxes you are saving. 

Tax BracketAmount saved per $10,000
More than $20,000 and less than $30,000$200
More than $30,000 and less than $40,000$350
More than $40,000 and less than $80,000$700
More than $80,000 and less than $120,000$1150
More than $120,000 and less than $160,000$1500

The numbers may not look significant now but let’s put things into perspective. 

Assume we will work 30 years in our lifetime and the average tax bracket we end up in is “More than $80,000 and less than $120,000”. 

If we contribute to SRS yearly, we will save about …

$1,150*30 = $34,500.

This could easily be a downpayment (or half, thanks to inflation) for an HDB. 

The savings alone is already a huge win factor for me.

What can you invest in using your SRS account?

Unlike CPF, you can do more with SRS. 

You can invest in the following – 

  • Singapore Savings Bonds
  • Unit trusts
  • Index funds
  • Blue chip shares
  • Endowment insurance plans
  • SGD fixed deposits

If you put in S$10,000 per year over 30 years, you will save about $300,000 as capital.

Assuming that your investment earns about 4% each year over the long term, you will earn about $283,000 in interest.

In total, you will have about $583,000 sitting in your SRS when you retire.

1M65? Not impossible!

This is the power of compounding, and of course discipline.

PS. Please note that 4% is a rough figure and reality may differ from my assumption. 

How do I perform CPF SRS withdrawals at withdrawal age without paying taxes?

Personally, I am putting aside $7,000 each year into SRS and using it for investment.

The long-term expected return I hope to achieve is 4%.

By the end of 30 years, I will have about $408,000 in my SRS account.

Now, let’s figure out the taxable income part. 

To reiterate, 50% of withdrawals from SRS are taxed.

However, we know that we are only required to pay taxes on the first $20,000 of our income.

So, we can withdraw up to $40,000 each year tax-free.

Assuming I have no other urgent needs, I will withdraw $40,000 each year from SRS tax-free!

Assuming I have $408,000 by end of 30 years, I can safely withdraw my SRS money (tax-free) over the maximum period of 10 years and need not worry about my children not giving me money.

(P.S. the last $8,000, in excess of $400,000, is still taxable)

To summarize, the playbook is to put aside $7,000 into SRS each year and invest, then withdraw $40,000 each year after I reach retirement age.

What are the disadvantages of CPF SRS?

Note that SRS is ultimately meant for retirement. There are penalties if you were to withdraw before the retirement age.

Early withdrawals are fully subject to tax and will incur a 5% penalty. 

Of course, there will be no penalties if you withdraw on reasonable reasons such as medical grounds, terminal illness and bankruptcy. 

You can refer to this link for more information. 

How to achieve FIRE: CPF SRS account tax relief

When it comes to FIRE, it’s all about playing the long game.

To do so, you will need to be disciplined and patient.

If you are lacking either of the two qualities, maybe SRS is a viable option for you.

Of course, SRS is just one of the many tools you can use. 

For instance, CPF is another great tool you can use to achieve FIRE. 

Let me know if what other tricks you have in our Telegram group.

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