CPF vs SRS advice

[Nofear40]

“There are a couple important caveats. First of all, you probably have to wait until the next January to make a premature SRS withdrawal and avoid ordinary income tax on the full amount. It depends on when the hypothetical income interruption occurs, but the fundamental point is that income taxes are assessed on a calendar year basis. And then, if you find a new job in February after making a premature SRS withdrawal in January, this SRS gambit didn’t work. (And it’s a good thing you found a new job.) Second, the maximum amount of 5% penalty tax rate premature withdrawal from a SRS account, with no other income tax, is $20,000, not $40,000 like it is for a qualified withdrawal.“
Thanks for highlighting.

“No, not for a single SA top up or even several. SA top ups effectively raise the BRS, but they don’t necessarily raise it up to the FRS. It depends on the timing and amount of SA top ups.“
What I mean is if you opt for BRS, you cannot withdraw the TOP ups above the BRS.

“I don’t think it makes any sense to reduce a Retirement Account below the FRS. Rather the opposite, actually. Whatever planet the CPF LIFE income stream associated with below-the-FRS is, it definitely ain’t high cost of living Singapore. It’s definitely not luxury living on a sub-FRS CPF LIFE income, so I don’t know why so many people feel it’s so critically important to be a super poor 65+ year old instead of a merely poor one, because that’s what we’re talking about here. So I don’t rank this consideration very high at all. However, if you do, why not a MA top up? You’re probably going to fill MediSave anyway, and the faster you fill it, the more interest you earn and the faster SA fills up with funds that can be withdrawn at age 55+ if you insist. MA voluntary contributions also qualify for tax relief (with no $7,000 limit), bonus interest, and can be useful at any/every age. MA VCs must fit within both the CPF Annual Limit and Basic Healthcare Sum.“
If your minimum sum and BHS is reached, any MA contribution by employer will flow to OA which gives you lower interest rate.

Thanks

 

[reddevil0728]

“There are a couple important caveats. First of all, you probably have to wait until the next January to make a premature SRS withdrawal and avoid ordinary income tax on the full amount. It depends on when the hypothetical income interruption occurs, but the fundamental point is that income taxes are assessed on a calendar year basis. And then, if you find a new job in February after making a premature SRS withdrawal in January, this SRS gambit didn’t work. (And it’s a good thing you found a new job.) Second, the maximum amount of 5% penalty tax rate premature withdrawal from a SRS account, with no other income tax, is $20,000, not $40,000 like it is for a qualified withdrawal.“
Thanks for highlighting.

“No, not for a single SA top up or even several. SA top ups effectively raise the BRS, but they don’t necessarily raise it up to the FRS. It depends on the timing and amount of SA top ups.“
What I mean is if you opt for BRS, you cannot withdraw the TOP ups above the BRS.

“I don’t think it makes any sense to reduce a Retirement Account below the FRS. Rather the opposite, actually. Whatever planet the CPF LIFE income stream associated with below-the-FRS is, it definitely ain’t high cost of living Singapore. It’s definitely not luxury living on a sub-FRS CPF LIFE income, so I don’t know why so many people feel it’s so critically important to be a super poor 65+ year old instead of a merely poor one, because that’s what we’re talking about here. So I don’t rank this consideration very high at all. However, if you do, why not a MA top up? You’re probably going to fill MediSave anyway, and the faster you fill it, the more interest you earn and the faster SA fills up with funds that can be withdrawn at age 55+ if you insist. MA voluntary contributions also qualify for tax relief (with no $7,000 limit), bonus interest, and can be useful at any/every age. MA VCs must fit within both the CPF Annual Limit and Basic Healthcare Sum.“
If your minimum sum and BHS is reached, any MA contribution by employer will flow to OA which gives you lower interest rate.

Thanks

Can I suggest that if you can’t use the quote function for each post, keep a line spacing between what you have quoted and what you are writing if not difficult to read.

 

[xiaosinsinful]

TS, i am close to your range. i put my extra money into SRS to lower taxes. disclaimer, i am not a supporter of CPF after introduction of min sum. god knows what new thing they will force upon me along the way as i still have 25 years before creation of RA account... and they already going to rob me of careshield next month already.... so for me, it is legistrated that 10 years draw down from the time of account opening... i invest my srs in long term stocks, drop abit also nv, at of 25years how much i gain is how much lor, best bet till date is sheng siong

Thanks for your reply. Not only are we in the same boat, i think we are also in the same frame of mind.

Yes, im too hesitant in putting into CPF after the changes from retirement sum > CPF life shows that govt and suka suka change plans, change min withdrawal age, introduce mandatory XXYYshield(that is forced to contribute) more so considering my timeline (and yours) is easily >20 years and many changes and occur in that time period. hence this thread, to hear more opinions.

Also similarly, im looking into long term higher risk investment into equities, a little drop isnt going to affect me that much since im not going to need/withdraw the money anyway.

 

[reddevil0728]

Thanks for your reply. Not only are we in the same boat, i think we are also in the same frame of mind.

Yes, im too hesitant in putting into CPF after the changes from retirement sum > CPF life shows that govt and suka suka change plans, change min withdrawal age, introduce mandatory XXYYshield(that is forced to contribute) more so considering my timeline (and yours) is easily >20 years and many changes and occur in that time period. hence this thread, to hear more opinions.

Also similarly, im looking into long term higher risk investment into equities, a little drop isnt going to affect me that much since im not going to need/withdraw the money anyway.

Confirmation bias is not a good thing. Starting a thread to hear opinion means should try to avoid having this bias.

If CPF rules can change SRS can also change.

 

[BBCWatcher]

If your minimum sum and BHS is reached, any MA contribution by employer will flow to OA which gives you lower interest rate.

True, but in that happy event OA dollars can be used for housing, education, transferred to loved ones’ SAs/RAs, invested via the CPF Investment Scheme, bequeathed to heirs (CPF nominees), and/or withdrawn at age 55+. That’s rather a lot of flexibility, more flexibility than SRS accounts offer in many respects, and atop a near-guaranteed 2.5% interest rate which the SRS certainly doesn’t offer. CPF assets are also better shielded against creditors and courts.

 

[compro_1975]

True, but in that happy event OA dollars can be used for housing, education, transferred to loved ones’ SAs/RAs, invested via the CPF Investment Scheme, bequeathed to heirs (CPF nominees), and/or withdrawn at age 55+. That’s rather a lot of flexibility, more flexibility than SRS accounts offer in many respects, and atop a near-guaranteed 2.5% interest rate which the SRS certainly doesn’t offer. CPF assets are also better shielded against creditors and courts.

u missed out withdrawn at age 55+ with min sum met... TS min sum is close to $400k as much as how much he has to put into SRS

https://geek.sg/tools/cpf-forecast/

 

[Andrew833]

u missed out withdrawn at age 55+ with min sum met... TS min sum is close to $400k as much as how much he has to put into SRS

https://geek.sg/tools/cpf-forecast/

Wow 400K
How to meet this crazy figure!

 

[SBC]

Wow 400K
How to meet this crazy figure!

Not difficult based on projected income.

In practical is so difficult to attain this.

 

[maumu]

Wow 400K
How to meet this crazy figure!

$400,000/15,300 = 26 years

not difficult if one starts at 62 - 26 = 36 years old...

 

[Andrew833]

$400,000/15,300 = 26 years

not difficult if one starts at 62 - 26 = 36 years old...

Not difficult based on projected income.

In practical is so difficult to attain this.

What I mean difficult for those born in 1990 CPF full retirement sum is $400k.
How are those middle income going to meet this amount.
Those grab, food panda etc delivery or driver, how to meet this amount.

 

[Tiger9119]

What I mean difficult for those born in 1990 CPF full retirement sum is $400k.
How are those middle income going to meet this amount.
Those grab, food panda etc delivery or driver, how to meet this amount.

If the monthly CPF contribution is $1300 per month for the next 25 yrs, the amount in CPF will be more than 600k at the age of 55yrs old.

 

[BBCWatcher]

u missed out withdrawn at age 55+ with min sum met... TS min sum is close to $400k as much as how much he has to put into SRS

No, that's most unlikely. The applicable future CPF Retirement Account funding level associated with MediSave Account voluntary contributions (and eventual spillovers to SA and then OA) is, in all likelihood, the Basic Retirement Sum. MA VCs don't have any impact on RA/SA/OA withdrawal restrictions except that you end up with more RA/SA/OA, with that much more available to withdraw at age 55+.

We don't know the thread starter's precise age, but let's assume age 27 given the available clues. Age 55 is thus less than 28 years away, but let's assume 28 annual increases in the BRS at a 3%/year nominal rate of increase. Today's (2020's) BRS is S$90,500. Take that figure and increase it by 3%/year 28 times, compounded, and you get about S$207,000. That's expressed in 2048 Singapore dollars of course, not in 2020 Singapore dollars. If general Singapore dollar inflation runs along at 1.5%/year average the 2048 BRS will be about S$137,000 expressed in 2020 dollars, and assuming 3%/year nominal growth. S$137K in a CPF Retirement Account at age 55 would still lead to an age 65+ CPF LIFE of poverty in Singapore if that's the sole or predominant source of retirement income. We should all aspire to more than that.

Anyway, the fact that retirement math and general inflation are "scary" shouldn't be exaggerated. If you're honest about these issues you deal in real (not nominal) dollars and actual, realistic consequences. If your plan, your aspiration, is that ~$137,000 (2020 dollars) in a 2048/age 55 CPF Retirement Account is "too much," then isn't that a bad plan? I sure think so. I don't aspire to be that poor, and that is poor, in Singapore. And you're highly likely to be less poor, or even wealthy, reliably earning 4% (or even 5% with bonus interest) per year, plus tax relief.

 

[xiaosinsinful]

Confirmation bias is not a good thing. Starting a thread to hear opinion means should try to avoid having this bias.

If CPF rules can change SRS can also change.

is it confirmation bias or facts?

CENTRAL Provident Fund (CPF) members will continue to receive the 4 per cent minimum interest rate for their Special, MediSave and Retirement Account (SMRA) monies for another year, until December 31, 2021.
https://www.businesstimes.com.sg/go...erest-rates-extended-by-a-year-to-dec-31-2021

so is it likely that CPF interest rate to increase or decrease after current rates expire?

 

[celtosaxon]

Lets say you are in your last 20s/early 20s in the 7% bracket.

to reduce tax would you

1. topup SRS / CPF /Both / None(pay taxes)
2.justify your choice and why not the other?

I understand that both gives a 1:1 tax relief , however why is one better then the other, also is it better to just pay taxes and keep cash liquid considering other financial goals e.g getting a house.

In your situation I would choose none (pay taxes) but would open and top up SRS with $1 to lock in age 62 retirement age.

I would then save & invest outside CPF/SRS until I at least had enough combined savings & CPF OA for a downpayment on a home.

 

[Andrew833]

If the monthly CPF contribution is $1300 per month for the next 25 yrs, the amount in CPF will be more than 600k at the age of 55yrs old.

I use CPF calculator to sum this;
Est born Sept 1990
Start contribution at Sept 2020
Basic salary $4k
The contribution (assume no change),
OA $920.13 after 25 years $383,733.10
SA $239.90 after 25 years $123,750.81
MA $319.97
Total exclude MA $507,483.91

 

[BBCWatcher]

In your situation I would choose none (pay taxes) but would open and top up SRS with $1 to lock in age 62 retirement age.

I would then save & invest outside CPF/SRS until I at least had enough combined savings & CPF OA for a downpayment on a home.

I think that's way too presumptuous! Did I miss information on the thread starter's home buying intentions (if any), and whether the thread starter (and spouse/partner?) would find it particularly difficult to muster a down payment if not for $X topped up now to MA, SA, and/or a SRS account?

I don't know the thread starter's precise age, but it's highly likely I contributed to both a 401(k) plan and an IRA -- these are very similar to SRS accounts -- much earlier than his current age. And that was a very wise decision in my circumstances.

 

[celtosaxon]

One other point that a lot of people miss - if later you decide to spend some or all of your retirement outside Singapore, even across the causeway - you may end up paying a minimum of the non-resident tax rate (currently 15%) on 50% of each SRS withdrawal, effectively 7.5% minimum.

For someone contributing $10,000 and saving $700 on the way in, and let’s say that grows to $20,000 by age 65, you’d end up paying $1,500 on the way out. You may have been better off outside SRS.

 

[Tiger9119]

I use CPF calculator to sum this;
Est born Sept 1990
Start contribution at Sept 2020
Basic salary $4k
The contribution (assume no change),
OA $920.13 after 25 years $383,733.10
SA $239.90 after 25 years $123,750.81
MA $319.97
Total exclude MA $507,483.91

MA was included in my estimate and also include year end bonus. Extra 1% for the first 60K not included. Also the allocation to SA will be higher for 45 to 50 yrs old and 50 to 55 yrs old.

 

[Andrew833]

MA was included in my estimate and also include year end bonus. Extra 1% for the first 60K not included. Also the allocation to SA will be higher for 45 to 50 yrs old and 50 to 55 yrs old.

Why MA should not include, cause MA got no effect on the minimum sum.

Even if you add all those except MA, after buying the 1st house, it's difficult to meet to 400K. That's my point of view.

 

[celtosaxon]

I think that's way too presumptuous! Did I miss information on the thread starter's home buying intentions (if any), and whether the thread starter (and spouse/partner?) would find it particularly difficult to muster a down payment if not for $X topped up now to MA, SA, and/or a SRS account?

I don't know the thread starter's precise age, but it's highly likely I contributed to both a 401(k) plan and an IRA -- these are very similar to SRS accounts -- much earlier than his current age. And that was a very wise decision in my circumstances.

The OP mentioned being in their 20’s and consideration against other financial goals like home ownership. In that situation I would prioritize on home ownership over topping up MA or SRS for 7% tax relief, especially if HDB subsidies were in play - those can potentially disappear as I progress in my career. Even if I had no partner, I would want to be ready if and when the time comes, or worst case, when I turn 35. Once my home ownership goal was secure, I would then look at MA top ups next, and SRS last.

401(k) programs normally include an employer match - if such a situation existed, I would definitely prioritize on that ahead of home ownership.

However, SRS is more similar to a Traditional IRA, but with one major difference... with SRS you opt-in to pay potential future taxes on growth that would otherwise be tax free outside of an SRS. For that reason, I don’t find it as compelling as an IRA, especially for younger people in lower tax brackets.