How to make the most of your SRS funds

This post was created in partnership with Syfe. All views and opinions expressed in this article are Beansprout's objective and professional opinions. 

What happened?

Recently, I attended a Syfe event on the Supplementary Retirement Scheme (SRS), and I was glad to see so many people keen to learn how to use SRS for tax savings and retirement planning. 

During the session, there were plenty of questions about how best to invest our SRS funds. 

Afterwards, some of you shared with me that choosing the right SRS investment option can be challenging with so many choices out there. 

Given the interest in learning how to choose the right SRS investment, I thought it would be useful to explore these options for growing your SRS funds. 

In this article, I’ll cover why I am investing my SRS funds, and how I might invest in the SRS investment options provided by Syfe. 

Why invest my SRS funds?

First, let me give you a quick rundown of SRS. 

The Supplementary Retirement Scheme (SRS) is a voluntary retirement scheme aimed at helping Singaporeans, Permanent Residents, and foreigners boost retirement savings while reducing taxable income.

Here are the key benefits of SRS:

1. Tax relief: Contributions to SRS are tax deductible, allowing you to reduce your taxable income. For example, contributing $10,000 to my SRS results in a tax relief of $10,000.
2. Tax-deferred investment gains: Investment gains are tax-free while in the account, and only 50% of the withdrawal sum is taxed when I withdraw on or after the statutory retirement age. 

However, if I leave my SRS funds idle in my SRS account, they earn only 0.05% interest, which won’t keep pace with inflation and could erode the value of my savings over time. 

By investing my SRS funds through a platform like Syfe, I can put my retirement savings to work, allowing them to compound over the long term, while I enjoy these tax benefits. 

Let’s look at some of the SRS investment options offered by Syfe. 

How can I invest my SRS funds with Syfe?

Syfe offers four SRS portfolios catered to different investment goals and risk appetites. 

Let’s take a look at each investment option offered by Syfe. 

#1 – Core Equity100

The Core Equity100 portfolio is a 100% equity portfolio with the aim to provide investors with long-term capital growth by investing in the stock market. 

The portfolio consists of high-quality, low-cost index funds such as the Amundi Index MSCI World Fund, Amundi Prime USA Fund, Dimensional US Core Equity Fund, Amundi Index MSCI Emerging Markets Fund, and Dimensional Global Targeted Value Fund. 

Through these funds, Syfe provides me with exposure to over 1,500 stocks globally. The portfolio is passively managed but is also optimised for performance by focusing on factors like value, size, and quality. 

Over the last eight years, the Core Equity100 portfolio has delivered an average annual return of 11.38%. (as of 31 August 2024). 

The portfolio is benchmarked against the MSCI All Country World Index (MSCI ACWI) and has outperformed the benchmark over that same 8-year period. 

As the Core Equity100 portfolio is comprised of low-cost index funds, the fund level fees are just 0.2% compared to actively managed equity funds, whose fees range between 1% to 2%. 

Because the portfolio invests in global stocks, I’d have to keep in mind that this portfolio will have more pronounced fluctuations in the short term due to market volatility. 

#2 – Income+ 

If I’m looking for income stability with moderate risk, Syfe’s Income+ portfolios provide two options: Income+ Preserve and Income+ Enhance. 

Before we explore each portfolio, here are some key characteristics that they both share:

• Institutional level funds: These portfolios are built with institutional-level funds from PIMCO, offering retail investors like myself access to lower-cost share classes of the fund
• Actively managed: These portfolios are also actively managed to adapt to market conditions and potentially generate a more attractive yield
• Tax efficient: It’s also worth noting that the funds are also Irish-domiciled, helping reduce withholding tax for Singapore investors, potentially saving up to 30% in tax costs
• SGD-hedged: The portfolios are SGD-hedged to mitigate currency risk
• Dividends reinvested: The dividends received are automatically reinvested back into the portfolio for compounding

Income+ Preserve

Income+ Preserve aims to generate steady income while preserving capital. 

This portfolio invests in high-quality, investment-grade bonds such as US Treasuries and investment-grade corporate bonds through PIMCO’s actively managed fixed-income funds.

The monthly payout ranges from 5% to 5.5% per annum. In addition, the average yield to maturity (YTM), which is the yield for holding the bonds in the funds to maturity, is 5.8%. 

This option balances income generation with capital preservation if I am looking for regular income at low risk. 

Income+ Enhance

Income+ Enhance, on the other hand, is designed for investors looking to capture a higher yield with the potential for some capital appreciation.

This portfolio achieves its yield by investing in a diverse range of higher-yielding fixed-income assets, including high-yield corporate bonds and emerging market credit, all actively managed by PIMCO’s expert team.

This broader mix of credit sources results in a slightly higher monthly payout range of 5.5% to 6% per annum, with a YTM of 6.4%. 

Of course, with this higher yield comes a bit more risk, as the portfolio includes high-yield credit, which tends to carry a lower credit rating compared to the investment-grade bonds in Income+ Preserve. 

These credit ratings tell us the credit quality and reliability of the bonds. The average credit rating for Income+ Preserve is A+ while the rating is A- for Income+ Enhance (as of 31 August 2024). 

#3 – Cash+ Flexi SGD

Cash+ Flexi SGD offers a stable, low-risk option for conservative investors or those looking to park their funds for the short term. 

With a projected return of 3.5% per annum, it provides a way to earn returns that beat inflation without taking on significant risk. 

The portfolio is composed of the Lion Global SGD Money Market Fund and the LionGlobal SGD Enhanced Liquidity Fund, which invests in short-term highly liquid instruments like money market instruments. 

What makes Cash+ Flexi especially appealing is its flexibility. 

I can withdraw funds as often as needed, with next-day access, no lock-in period, and no minimum balance. 

How can I maximise my SRS investments with Syfe portfolios? 

To make the most of my SRS funds, I’m strategically aligning both my risk tolerance and investment time horizon to leverage on potential long-term capital growth when I am younger, then adapting to a more income-focused approach as my retirement nears. 

#1 – Align investment with long time horizon 

As we can only withdraw our SRS funds at the statutory retirement age to enjoy the full tax benefits, I have a long 20 to 30-year time horizon for my SRS funds.

In this case, I can look into equity investments like the Core Equity100 portfolio, which can benefit from the potential long-term stock market growth. 

For example, investing $5,000 a year over 30 years with a projected return of 11% p.a. would generate $845,104.39 in capital gains.

In contrast, investing $5,000 a year over 30 years with a projected return of 3.5% p.a. would only generate $108,113.39 in capital gains.

As the returns over 30 years would compound considerably, it could make a difference in whether I will have a comfortable retirement cushion. 

This long horizon also allows me to ride out market fluctuations, which can impact equities in the short term. 

#2 – Adjust my strategy as I move closer to retirement

As I approach retirement, my focus may shift to preserving my retirement savings while still generating a steady income. 

Here, Syfe’s Income+ Preserve or Income+ Enhance portfolio could be an option to explore. The Income+ Preserve has a yield-to-maturity of 5.8%, while the Income+ Enhance has a yield-to-maturity of 6.4%, as of 30 September 2024. 

This gradual reallocation to lower-risk options means I can reduce portfolio volatility and rely on a steady income stream, with dividends automatically reinvested to maximise returns. 

Shifting to these lower-risk options reduces my exposure to equity volatility and helps ensure that my retirement savings aren’t overly affected by sudden market downturns.

#3 – Using Cash+ Flexi for flexibility

In addition to retirement planning, Cash+ Flexi serves as a flexible, low-risk option to park funds that I may wish to invest in higher-yield options when market opportunities arise. 

With projected returns of 3.5% per annum, my funds earn returns in line with money market rates. 

And the unlimited next-day withdrawals mean that I can quickly access the funds to deploy into investments if the opportunity arises. 

What else would I consider when investing with SRS funds?

When withdrawing from my SRS account on or after retirement age, I need to keep in mind that 50% of the withdrawals will be subject to tax.

According to the income tax rates for Year of Assessment (YA2024), the first $20,000 of chargeable income is tax-free. This allows me to withdraw up to $40,000 annually from my SRS account without incurring tax on or after retirement age.

I can spread these withdrawals over a maximum period of 10 years, starting from the date of my first withdrawal. This means I could withdraw a total of $400,000 tax-free over 10 years. Any amount exceeding $400,000 would still be taxed, with 50% of the excess subject to the prevailing income tax rate.

What would Beansprout do?

With a range of options available, Syfe’s SRS portfolios allow us to align our investments with our goals, whether it’s growth, steady income, or flexibility. 

If we have a long-term horizon and a high tolerance for risk, Core Equity100 offers exposure to global equities with potential long-term growth for our SRS funds. 

If income stability is the goal, Income+ provides a balance of yield and low-to-moderate risk. 

With options like Income+ Preserve and Income+ Enhance, there’s room to customise based on our risk appetite. 

For a more conservative approach, Cash+ Flexi offers an accessible, low-risk option with easy withdrawals. We could also use this portfolio for times when we need a “parking space” for our funds while waiting to reinvest.

Learn more about Syfe’s SRS portfolios here.

Are there any promotions for Syfe?

Enjoy up to $400 in cashback when you transfer in SRS funds to Syfe and invest in the Core Equity100 or Income+ SRS portfolios. Both new and existing users of Syfe are eligible for this promotion. 

To qualify, you must create a new SRS portfolio and transfer fresh SRS funds by 31 December 2024, 23:59 SGT.

Simply apply the promo code SRSBS before funding your portfolio.

You can find the full terms and conditions of the promotion here. 

Pro Tip: The promo code can be combined with the new user promo code below. 

For new users of Syfe, apply the promo code BEANSPROUT to get up to 12 month fee waiver on Syfe Managed Portfolio or Cash Management.

Disclaimers:

Not financial advice. Any opinion relating to the Syfe platform is my own. All information obtained from third-party sources are obtained from sources believed to be reliable at the time of writing. Rates of returns are accurate at the time of writing. This is a sponsored post by Syfe Pte. Ltd. This advertisement has not been reviewed by the Monetary Authority of Singapore.