Hi BBCW. Should a young working adult planning to retire in Singapore simply pay the full amount of income tax and invest the remaining cash in equities instead of utilising the CPF Cash Top-up Relief and Voluntary Medisave Contribution?

Let's say an individual earned exactly $54,000 the previous year. A total of $550 is taxable on his first $40,000 earned, and a 7% tax rate applies on the remaining $14,000. This means he has to pay $980 on the remaining $14,000. He can avoid paying this $980 by topping-up, for example, $7,000 into his SA and $7,000 into his MA (subject to the BHS and the Annual CPF Limit). Let's ignore all other personal income tax reliefs for simplicity. Is it worth locking up $14,000 in the CPF accounts just to "save" $980? He could simply pay the $980 in income tax, and invest the remaining $13,020 in equities that would likely earn greater returns than if they were simply sitting in the SA and/or MA. After all, the Government only pays extra interest on the first $60,000 of one's CPF combined balance. Moreover, if an individual is treating his CPF as the bond component of his portfolio, topping up an extra $14,000 might mean an underweighting of equities overall.

Let's assume instead that the individual earned exactly $94,000 the previous year. In that case, $3,350 would be payable as income tax on the first $80,000. An 11.5% tax rate applies on the remaining $14,000, which would mean another $1,610 would be payable. Is it worth avoiding $1,610 in income tax but locking up $14,000 in the CPF accounts? Does it make more sense to utilise the CPF Cash Top-up or Voluntary Medisave Contribution for tax relief only if the person is at a certain income tax bracket?

On a related note, I recall you mentioned that the SRS is generally more useful for those in higher income tax brackets. I take it one of the reasons is that those in a higher income tax bracket should first be exhausting the CPF Cash Top-Up and Voluntary Contributions to Medisave Account options available. Are there any other reasons in particular? And similarly, is there a particular income tax bracket you envision the SRS actually starting to become useful?