CPF vs SRS advice

[dork32]

“The higher the assumed return on investment, the worse off you are.”

wat crazy statement this is. so if my investment is giving good returns, i will put less into the srs or i will take longer to draw it to 0

 

[xiaosinsinful]

“The higher the assumed return on investment, the worse off you are.”

I’m not suggesting no to SRS. I’m just saying it might not make sense at the get go.

There ain’t a one-size fits all rule. So it really depends on the premise.

As I mentioned in my first post, paying less tax is secondary, but it’s more about what your objective is. Paying less tax is a by product.

If I really want to have a true maximisation of my returns, I wouldn’t only look at how much tax I can save now, but how much tax I can save in total and how much returns i can get as a whole.

wow, have you gone mad? so... you are saying 1% return on investment is better, yes BETTER then 5% investment?

I think the general consensus of using SRS as a long term investment vehicle is to try to get better return compared to CPF at the same time getting some tax relief. But on whichever note, i dont think that higher return is worst, it just dosent make any sense.

Now if your argument is , at 62 if your account has > 400000(40k*10years) which would be taxed. firstly one could easily reduce to amount of $ put into it and gotten the same amount through dividend/capital gain. secondly, by putting of the tax and investing it through 20-30years (again with capital gains/dividends ) AND getting taxed @62 i think is a good deal. money have been working for the past 20 years

 

[reddevil0728]

wat crazy statement this is. so if my investment is giving good returns, i will put less into the srs or i will take longer to draw it to 0

wow, have you gone mad? so... you are saying 1% return on investment is better, yes BETTER then 5% investment?

I think the general consensus of using SRS as a long term investment vehicle is to try to get better return compared to CPF at the same time getting some tax relief. But on whichever note, i dont think that higher return is worst, it just dosent make any sense.

Now if your argument is , at 62 if your account has > 400000(40k*10years) which would be taxed. firstly one could easily reduce to amount of $ put into it and gotten the same amount through dividend/capital gain. secondly, by putting of the tax and investing it through 20-30years (again with capital gains/dividends ) AND getting taxed @62 i think is a good deal. money have been working for the past 20 years

https://endowus.com/insights/solvin...rimary-6-math-terms-and-sensitivity-analysis/

i am quoting... not i say 1

my point is still the same. there is no 1-sized fits all rule. it depends on each person's individual profile.

 

[chrisloh65]

I believe you are absolutely right on your points!

You can ignore those ignorant ones who are trying to act smart. There are quite a plenty here, who are just making a laughing stocks of themselves because they don't even have a track record of earning good returns from investment themselves but yet are advising the rest of you here like they are investment expert!

If you are high income earners, by all means contribute to the max to your SRS and use that to invest in Singapore stocks or ETFs. If your portfolio overflows by the time you can withdraw, paying some tax to withdraw is a happy ending isn't it? Anyway, with SRS you can withdraw anytime you want if you really need cash with a small penalty (unlike CPF).

wow, have you gone mad? so... you are saying 1% return on investment is better, yes BETTER then 5% investment?

I think the general consensus of using SRS as a long term investment vehicle is to try to get better return compared to CPF at the same time getting some tax relief. But on whichever note, i dont think that higher return is worst, it just dosent make any sense.

Now if your argument is , at 62 if your account has > 400000(40k*10years) which would be taxed. firstly one could easily reduce to amount of $ put into it and gotten the same amount through dividend/capital gain. secondly, by putting of the tax and investing it through 20-30years (again with capital gains/dividends ) AND getting taxed @62 i think is a good deal. money have been working for the past 20 years

 

[celtosaxon]

“The higher the assumed return on investment, the worse off you are.”

I believe this statement is referring to how you do your AA. For example, if you invest in MBH outside SRS and have ES3 inside SRS, that could be a dumb move because the higher growth inside SRS could mean higher taxes. In such a scenario you should probably switch your MBH to SRS and keep ES3 outside SRS to grow tax free. This scenario may not apply to everyone, depending on your target AA.

 

[Value.Matrix]

I believe this statement is referring to how you do your AA. For example, if you invest in MBH outside SRS and have ES3 inside SRS, that could be a dumb move because the higher growth inside SRS could mean higher taxes. In such a scenario you should probably switch your MBH to SRS and keep ES3 outside SRS to grow tax free. This scenario may not apply to everyone, depending on your target AA.

Honestly, Just do a mathematical approach with assumption.

Since SRS withdrawal is a 50% tax, even if you use the max relief you can get, the max amount of tax to pay (assuming you went crazy with SRS contribution) is a marginal 11% tax payable. (and that is assuming your yearly withdrawal hit the max 22% taxable).

It is a happy problem to pay more tax as long as your current tax rate is at 11% (since even if your SRS amount hits 22% tax rate, you are effectively paying 11% since 50% is taxable income).

Why are you guys arguing like its crazy to pay tax?

Its ok to even have $800,000 in your SRS by 62 for withdrawal since the incremental tax is only up to 3.5% tax (with a total blended tax rate of 0.6875%).

So at 7%, its honestly a no brainer.

imagine at age 30, you contribute max $15,300 and at growth rate of 10% for investment (trying to make it ridiculous here), you will have $3 million in your SRS, you can withdraw

$500,000 a year, where your income taxable will be $250,000.
Your tax will be $30,700 > tax rate at 6% which is lower than the tax (including compounding return) you will be paying.

Your future self gained more, in terms of Future value, unless anyone can tell me what is the error over here, which i will gladly wish to know, and thank you in advance.

 

[s0crates]

The statement was quoted out of context. The writer was saying the higher your investment return, the less likely you are going to contribute to SRS because you are going to be worse off paying taxes at withdrawal age.


Using an extreme example. If you can make 100% returns per annum, would you contribute to SRS or just invest your taxed monies? That was essentially what that statement was saying.

wat crazy statement this is. so if my investment is giving good returns, i will put less into the srs or i will take longer to draw it to 0

 

[BBCWatcher]

The statement was quoted out of context.

Yes, I know. I was just having fun with that sentence. The serious point, though, is that too many people get too silly about trying to reduce tax. The “top line” is much more important.

 

[SBC]

wat crazy statement this is. so if my investment is giving good returns, i will put less into the srs or i will take longer to draw it to 0

May not be totally true. If can get another 100k to invest to earn yearly 100% return, why not?

 

[celtosaxon]

The statement was quoted out of context. The writer was saying the higher your investment return, the less likely you are going to contribute to SRS because you are going to be worse off paying taxes at withdrawal age.


Using an extreme example. If you can make 100% returns per annum, would you contribute to SRS or just invest your taxed monies? That was essentially what that statement was saying.

That is like cutting off your nose to spite your face. The point that I made was that if you are already investing in low risk, low return investments outside SRS, you might as well swap them into SRS to hedge against a future suboptimal tax situation.

Nobody knows what tax rates are going to be in the future, and nobody knows what tax bracket they will be in during retirement. But again, if you do not have a need for low risk, low return investments in your overall asset allocation, SRS is not a reason to start. As you get you get older and want to dial back that risk, SRS would be the first place to look at starting that transition.

 

[Value.Matrix]

The statement was quoted out of context. The writer was saying the higher your investment return, the less likely you are going to contribute to SRS because you are going to be worse off paying taxes at withdrawal age.


Using an extreme example. If you can make 100% returns per annum, would you contribute to SRS or just invest your taxed monies? That was essentially what that statement was saying.

If that's the case, then any income tax payable now above 11% is contribution to SRS.

Because the future earned deferred tax will also be 11% (half of 22% at worst) regardless of how high your SRS is, and that is the max amount of tax (again, unless personal income tax increase again).

So based on this, just contribute lah if you are a high income earner. losing that 2% is negligible honestly when your wealth is so big.

 

[celtosaxon]

If that's the case, then any income tax payable now above 11% is contribution to SRS.

Because the future earned deferred tax will also be 11% (half of 22% at worst) regardless of how high your SRS is, and that is the max amount of tax (again, unless personal income tax increase again).

So based on this, just contribute lah if you are a high income earner. losing that 2% is negligible honestly when your wealth is so big.

Did you consider compounding? With a 7.2% annual return, the value will double every 10 years.

In other words, $15,000 put in today would be worth $30,000 in 10 years, $60,000 in 20 years and $120,000 in 30 years.

Outside SRS the $105,000 gain is tax free.

 

[s0crates]

Nobody knows what tax rates are going to be in the future, and nobody knows what tax bracket they will be in during retirement. But again, if you do not have a need for low risk, low return investments in your overall asset allocation, SRS is not a reason to start. As you get you get older and want to dial back that risk, SRS would be the first place to look at starting that transition.

Well the context of our discussion points are going to be lost along the way. I get your point.

Why so many negatives in your argument? It's very confusing writing bro. I will just take risk when I am young, even at 7% tax bracket and invest aggressively till I hit my late 50s. Don't need to overthink too much IMO.

 

[Value.Matrix]

Did you consider compounding? With a 7.2% annual return, the value will double every 10 years.

In other words, $15,000 put in today would be worth $30,000 in 10 years, $60,000 in 20 years and $120,000 in 30 years.

Outside SRS the $105,000 gain is tax free.

I did an excel sheet le. What i am interested is only the future value after withdrawal.

Consider without SRS, you have only $13,350 to invest (11% tax). Age 30, you have 32 years compound at 7.2% yearly with $13,350
At age 62, you have $1,640,211.98
Then you drawdown 10 years $219,862.80 (with no tax) (Your TAX Free example)

SRS, you have $15,000 to invest annually. Age 30, you also have 32 years to compound 7.2% yearly with $15,000.00
At age 62, you have $1,842,934.31.00
Then you drawdown 10 years $247,038.86 (but wait there's tax right).
Taxable income is 50% = $123,519.43 > Tax payable = $7,950 + $527.92 = $8,477.92
So Annually you can draw down $238,560.94 after tax payable

See my point? about future value.

Edit: Maybe you say not fair to use this.

Why not i use 11% taxable on the whole $247,038.86
So my annual drawdown is $219,864.59 just slightly higher only. Breakeven le ba?

 

[xiaosinsinful]

Well the context of our discussion points are going to be lost along the way. I get your point.

Why so many negatives in your argument? It's very confusing writing bro. I will just take risk when I am young, even at 7% tax bracket and invest aggressively till I hit my late 50s. Don't need to overthink too much IMO.

I agree. If I’m going the SRS route and given a 30 years investment horizon I definitely won’t be going Low risk ssb but probably a 100% equity portfolio. I’m not planning withdrawing it anytime soon.

However, after receiving the other feedback such as planning on getting big ticket items + Long period before withdrawal age >30 years+ current Low tax bracket maybe CPF or cash might be a better choice.


Btw thanks a lot for the differing opinions on SRS, upcoming purchases consideration, age consideration etc

 

[celtosaxon]

For me, maximum investment returns relative to risk and optimal tax efficiency relative to all available alternatives are two of my highest priorities. I also put a price on flexibility vs. keeping in SRS with limited investment options until 62.

Don’t get me wrong, I’m not totally negative on SRS, but I think it’s important to make an informed decision that considers all aspects, benefits, costs, risks and constraints.

 

[dork32]

May not be totally true. If can get another 100k to invest to earn yearly 100% return, why not?

if you can find something that gives 100% why waste time on cpf top up? we are comparing these two, arnt we?

 

[dork32]

https://endowus.com/insights/solvin...rimary-6-math-terms-and-sensitivity-analysis/

i am quoting... not i say 1

my point is still the same. there is no 1-sized fits all rule. it depends on each person's individual profile.

i agree that there is no 1size fits all solution.

i also mentioned before, any monkeys can post on the internet.

 

[dork32]

The statement was quoted out of context. The writer was saying the higher your investment return, the less likely you are going to contribute to SRS because you are going to be worse off paying taxes at withdrawal age.


Using an extreme example. If you can make 100% returns per annum, would you contribute to SRS or just invest your taxed monies? That was essentially what that statement was saying.

we are comparing srs and cpf here. why talk about alternative investment?

 

[reddevil0728]

i agree that there is no 1size fits all solution.

i also mentioned before, any monkeys can post on the internet.

If a monkey knows how to post on the internet, then must really listen to the monkey already.