Why You Should Open an SRS Account Now

Edit 21/08: Well it looks like you have more than 2 years to procrastinate as the retirement age is going up to 63 only in 2022.

The writing has been on the wall for a while now, and just a week ago, PM Lee has publicly stated that the retirement age will be going up. As such, I have gotten around to doing something that I have put off for a while now: I opened an SRS account.

This is something relevant to most people under the current retirement age, even if you’re a student or may not be earning a lot currently.

What is an SRS Account?

SRS stands for Supplementary Retirement Scheme, and it is an optional account Singapore residents can open to save for retirement. To incentivise retirement saving, amounts contributed to one’s SRS are exempted from tax.

For instance, if your chargeable income is $80,000 after your various tax reliefs and you choose to contribute $5,000 to your SRS, your income tax would be reduced by $350 for the year (7% bracket multiplied by $5,000). High income earners would benefit the most from this, as the tax savings are greater with higher tax brackets.

Unlike CPF, money in your SRS can be withdrawn at any time, but there is a 5% penalty if you withdraw it before the statutory retirement age (currently 62), and the amounts withdrawn would be subjected to tax. After the retirement age, you can withdraw without any penalty, and only 50% of the sums are subjected to tax. When you’re retired and without an income, withdrawing $40,000 a year translates into $20,000 taxable income which is in the 0% tax bracket.

Why you should open one now, even if it’s not immediately relevant

Even if you don’t feel that tax savings is relevant at your current situation, opening an SRS account now is a prudent move to take as it locks in the current retirement age of 62. All you have to do is to open an account with OCBC, UOB, or DBS and contribute $1.

When the retirement age is increased, any new SRS accounts opened would follow the new retirement age which is speculated to be anywhere between 63 to 65. One would rather have an account that allows for penalty-free withdrawals at an earlier age of 62 since it offers greater flexibility.

If you never use it, you can withdraw your dollar at a loss of 5 cents – a paltry amount to pay for flexibility. If you do eventually make use of your SRS, you would probably be happier with an account that allows you to withdraw your tax-exempted SRS savings at an earlier age.

I opened my SRS account with DBS and it took literally less than 2 minutes. Now I just need to earn lots of money to make full use of this tax shelter.