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?
Types of single premium insurance products that you can buy with SRS
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.
SavvyEndowment 2 is a short 2-year endowment policy that provides returns of up to 2.101% per annum. This is up to 104.22% of the single premium amount you paid. For risk averse individuals in this yield hungry world, this is a decent return compared to close to 0% if your SRS funds are left idle.
Manulife Goal 4 is also a short 4-year endowment policy that returns the single premium if it is held to maturity, and a fixed yearly income of 1.80% of the single premium for the first three policy years. This adds up to a total of 5.40% over 3 years. Policyholders have the flexibility to withdraw the fixed yearly income or accumulate3 them at a non-guaranteed interest rate. Manulife Goal 4 can be bought at any DBS / POSB branch with no health check-ups needed, & guaranteed acceptance.
- 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).
All of these will determine how much you need to pay as a single premium.
If you are interested in getting any of these, find out more by making an appointment here, or by visiting any DBS/POSB branch.
1 The potential maturity bonus of 3.24% of the single premium is based on the higher illustrated investment rate of return of 2.11% p.a. Based on the lower illustrated investment rate of return of 0.80% p.a., the potential maturity bonus will be zero. The bonus rate and the illustrated investment rate of return are not guaranteed and will depend on the future performance of the Participating Fund of the policy.
2 This figure is rounded down to 1 decimal place.
3 For both Cash and Supplementary Retirement Scheme (SRS), the policy owner can choose to either (1) fully or (2) partially withdraw the accumulated fixed yearly income plus interest (if any) by submitting a withdrawal form to Manulife. The minimum withdrawal amount is S$500 or the balance available. For policies purchased using SRS, full or partial withdrawal of the accumulated fixed yearly income plus interest (if any) will be paid directly to the SRS account as per prevailing SRS guidelines.