How to make your SRS go the extra mile with insurance
If you’re reading this, you have probably opened a Supplementary Retirement Scheme (SRS) account. To recap, it is a voluntary scheme by the government that’s designed to help you save more for your retirement – so that your children can worry less about providing for your old-age needs.
In addition, it earns you an interest rate of 0.05% each year. Better than zero, but barely. That’s why it is a rather good idea to invest the monies. At the very least, you’ll have a fighting chance at beating inflation. There are many articles about investing using things like unit trusts, equities, and bonds. But much less has been said about using SRS for your insurance. In this article, we hope to explain further.
How Does SRS Help You Build Your Nest Egg?
But first, some tips on how to use your SRS to build your retirement nest egg.
- SRS contributions come with tax reliefs
Each dollar you contribute to SRS gives you S$1 of tax relief, subject to a maximum of $80,000 for all tax reliefs claimed. For Singaporeans and Permanent Residents, the limit on SRS contributions for tax relief is S$15,300 while the limit for foreigners is S$35,700.
- Stretch the withdrawals over 10 years to enjoy even more tax concessions
Besides tax reliefs for contribution, you should also know that withdrawals after the legal retirement age (currently 62) enjoy a 50% tax concession. This means that only 50% of the withdrawals are taxable. So, if you make a withdrawal from your SRS account after age 62, you can enjoy the full tax concession benefits. Do note that if you make a withdrawal before you turn 62, any withdrawal is taxable in full and subjected to a 5% penalty.
- No tax on investment capital gains
You can use your SRS monies to purchase or invest in a range of financial products:
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.
(Read more: How to purchase investment products with your SRS monies.)
How do insurance products help your SRS go the extra mile?
While SRS account is commonly used for investments, it is not the only thing you can buy with your SRS money. It can also be used for buying insurance products. But the option to purchase insurance products with your SRS is sometimes overlooked, (no) thanks to the range of investment products you can purchase.
So let’s not discount insurance products because they can be really useful in helping you go the extra mile with your SRS money. Here’s why:
- You can get an income stream with a one-time premium payment
In order to enjoy your retirement, you need to ensure that you have a steady and healthy cashflow for your retirement expenses. One way to achieve that is to invest your SRS money in a single premium annuity.
With a single premium annuity, you just need to make a one-time premium payment. After which, your insurer will ensure that it gathers value over time. Upon maturity, you can either choose to receive a lump sum payout or opt for a stream of income for x years, starting from a date of your choice.
- You get some level of certainty
For families, insurance products (e.g. endowments) can be an important aspect of your retirement planning. Unlike investments, some insurance products offer a unique proposition of guaranteed returns. This makes them a good fit for those who are looking for more conservative and consistent returns.
- You get to increase the level of financial protection for your family
A key aspect of insurance is to provide financial protection for your loved ones. In the event of death or terminal illness, having the right insurance ensures that your dependents have the finances to tide them over the next few years. One benefit of SRS is that you are allowed to make withdrawal at full tax exemption for up to S$400,000 upon death or terminal illness.
How Much Single Premium Insurance Should You Get?
To answer this question, you need to first set your goals. Here are three questions to guide you in setting your goals.
- When do you wish to retire?
- How much “guaranteed monthly income” do you want per month?
- Over what period of time do you want to receive that income for?
What are your SRS insurance options?
Similar to investments, there are a plethora of insurance products for you to choose from. To give you a flavour of the variety, here are some that you can purchase using SRS.
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.
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 II 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).
If you are interested in getting any of these, find out more by making an appointment, or by visiting any DBS/POSB branch.
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.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
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