Retirement Plans

[Suleyman]

Yes, I know that insurance plans enriches the agent, maybe even more than me. Yes, I know I can do better with smart investments into blue chip/ETF dividend paying stocks.

However, the reason I am looking at Retirement Plans is for a slightly different reason.

At the current rate of contribution and projected returns, I will have more than $400,000 in my SRS account by the time I retire. This means that even as I spread out my withdrawal over the ten years, I will incur some tax on the balance above $400,000. Granted that I still end up saving money, given the '50% taxable' rule & the (most likely) lower tax bracket, I am interested in ways I can minimize my 'contribution to nation building' in my twilight years.

One option seems to be to buy an insurance plan with payout after the retirement age (eg at 65 or 70). The idea is that even though the payout will still be subject to the 50% tax rule, I will receive the bulk of the payout after the 10 year withdrawal period. As I understand it, while your SRS account exists, it pays directly into the SRS account & you will withdraw it (& pay tax on it) like any other SRS withdrawal. Once your SRS account has been closed (10 years after your first withdrawal), it will pay directly into your bank account, but you will still have to pay tax on it as if it was a SRS withdrawal (ie 50% taxable income)

To illustrate this, say for example, I will have $300k balance in SRS at 62, with a retirement plan that starts payout at 70. I shake leg at home at 62, with 0 income. Withdraw $40k from SRS every year, so, at 50% taxable income, there is no need to pay income tax, and by the year I am 69, the entire $300k balance is withdrawn. The year I am 70, the retirement plan kicks in & I get $2k a month, taxed at 50% as well, so $12k per year taxable income, which that is again no tax.

So questions in my mind are
1) Are my assumptions correct?
2) Is the maths sound? Would the tax savings reasonably cover the lower returns, esp if I focus on guaranteed returns, using the plan (together with CPF Life) as the foundation for monthly pay, supplemented by returns from other investments (which would have higher returns but also inherent risks)
3) If so, what are the better retirement products on the market? Manulife RetireReady seems to have one of the higher guaranteed rates & pays for life, which are important if I am to use this as part of my retirement income.

TIA for any kind advice.

 

[BBCWatcher]

You can't assume that the tax rules will be the same in the future as they are today.

And no, I don't think your plan works. Quoting IRAS, "The amount (except for life annuities) in the SRS account will be deemed to be withdrawn immediately after the end of the 10-year withdrawal period. If the SRS member has insurance policies such as endowment and termed annuities in his SRS account on expiry of the 10-year withdrawal period, he does not need to close his SRS account or surrender his insurance policies. The value of the insurance policies (i.e. surrender values as determined by the insurance companies) together with cash and market value of other investments in the SRS account will be deemed withdrawn."

The way I read that, you're better off spreading your withdrawals evenly (subject to your other taxable income, if any), once you start making them. If you attempt to manipulate the cash flow with an insurance product (which probably isn't a good value anyway) then you'll probably just end up with a bigger lump taxed in the 10th year -- non-smooth, pushing you into a higher bracket potentially. That's because of the "deemed withdrawal" rule in that final year.

The one exception is "life annuities," as mentioned above. As far as I know, only NTUC Income and Tokio Marine Singapore sell life annuities in Singapore. That might be the loophole you're looking for, but further research is required -- and will be required when you get to that age, since the tax rules can and probably will change.

 

[Suleyman]

Thanks for the reply. Yes, I was looking at life annuity plans. The ones I found were
- Manulife RetireReady (lifetime option)
- NTUC Income Guaranteed Life Annuity
- Tokio Marine Retirement GIO

Each has their pros and cons but I thought Manulife RetireReady was the best option, given what I was looking for; basically a higher guaranteed payout.

I am aware that there is a possibility that the tax regime may change. To a certain degree, it is a gamble but well, given my age (which isn't that far from retirement... lol), I thought it was a reasonable bet that there will not be any drastic changes. Even if there are changes, it's likely to be worse (higher rates, lower brackets), than better.

 

[BBCWatcher]

One concern I'd have is that IRAS might have a problem with "lifetime annuities" if they aren't simple ones. I see they have a SRS requirement for single premium insurance products, for example. So just be careful if you're trying to thread that particular needle. RetireReady has some disability provisions, for example, that might complicate its tax status.

Another option that looks interesting is to bequeath a SRS. It appears there are some additional tax advantages if you do that.

 

[SBC]

How old is TS? Married with kids?

I am mid-40s. SRS is currently sub-100k. I will hope to cross 250k by age 60.

I would say is 400k SRS is a bold and challenging target.

 

[gerimegaly]

Yes, I know that insurance plans enriches the agent, maybe even more than me. Yes, I know I can do better with smart investments into blue chip/ETF dividend paying stocks.

However, the reason I am looking at Retirement Plans is for a slightly different reason.

At the current rate of contribution and projected returns, I will have more than $400,000 in my SRS account by the time I retire. This means that even as I spread out my withdrawal over the ten years, I will incur some tax on the balance above $400,000. Granted that I still end up saving money, given the '50% taxable' rule & the (most likely) lower tax bracket, I am interested in ways I can minimize my 'contribution to nation building' in my twilight years.

One option seems to be to buy an insurance plan with payout after the retirement age (eg at 65 or 70). The idea is that even though the payout will still be subject to the 50% tax rule, I will receive the bulk of the payout after the 10 year withdrawal period. As I understand it, while your SRS account exists, it pays directly into the SRS account & you will withdraw it (& pay tax on it) like any other SRS withdrawal. Once your SRS account has been closed (10 years after your first withdrawal), it will pay directly into your bank account, but you will still have to pay tax on it as if it was a SRS withdrawal (ie 50% taxable income)

To illustrate this, say for example, I will have $300k balance in SRS at 62, with a retirement plan that starts payout at 70. I shake leg at home at 62, with 0 income. Withdraw $40k from SRS every year, so, at 50% taxable income, there is no need to pay income tax, and by the year I am 69, the entire $300k balance is withdrawn. The year I am 70, the retirement plan kicks in & I get $2k a month, taxed at 50% as well, so $12k per year taxable income, which that is again no tax.

So questions in my mind are
1) Are my assumptions correct?
2) Is the maths sound? Would the tax savings reasonably cover the lower returns, esp if I focus on guaranteed returns, using the plan (together with CPF Life) as the foundation for monthly pay, supplemented by returns from other investments (which would have higher returns but also inherent risks)
3) If so, what are the better retirement products on the market? Manulife RetireReady seems to have one of the higher guaranteed rates & pays for life, which are important if I am to use this as part of my retirement income.

TIA for any kind advice.

Was reading your post and just wanted to clarify:
Are you using the monies in your SRS account to purchase a retirement plan at Age 62...that pays out at Age 70?

 

[Bigoya]

http://forums.hardwarezone.com.sg/m...ability-care-benefit-ntuc-income-5681311.html

 

[hwmook]

Yes, I know that insurance plans enriches the agent, maybe even more than me. Yes, I know I can do better with smart investments into blue chip/ETF dividend paying stocks.

However, the reason I am looking at Retirement Plans is for a slightly different reason.

At the current rate of contribution and projected returns, I will have more than $400,000 in my SRS account by the time I retire. This means that even as I spread out my withdrawal over the ten years, I will incur some tax on the balance above $400,000. Granted that I still end up saving money, given the '50% taxable' rule & the (most likely) lower tax bracket, I am interested in ways I can minimize my 'contribution to nation building' in my twilight years.

One option seems to be to buy an insurance plan with payout after the retirement age (eg at 65 or 70). The idea is that even though the payout will still be subject to the 50% tax rule, I will receive the bulk of the payout after the 10 year withdrawal period. As I understand it, while your SRS account exists, it pays directly into the SRS account & you will withdraw it (& pay tax on it) like any other SRS withdrawal. Once your SRS account has been closed (10 years after your first withdrawal), it will pay directly into your bank account, but you will still have to pay tax on it as if it was a SRS withdrawal (ie 50% taxable income)

To illustrate this, say for example, I will have $300k balance in SRS at 62, with a retirement plan that starts payout at 70. I shake leg at home at 62, with 0 income. Withdraw $40k from SRS every year, so, at 50% taxable income, there is no need to pay income tax, and by the year I am 69, the entire $300k balance is withdrawn. The year I am 70, the retirement plan kicks in & I get $2k a month, taxed at 50% as well, so $12k per year taxable income, which that is again no tax.

So questions in my mind are
1) Are my assumptions correct?
2) Is the maths sound? Would the tax savings reasonably cover the lower returns, esp if I focus on guaranteed returns, using the plan (together with CPF Life) as the foundation for monthly pay, supplemented by returns from other investments (which would have higher returns but also inherent risks)
3) If so, what are the better retirement products on the market? Manulife RetireReady seems to have one of the higher guaranteed rates & pays for life, which are important if I am to use this as part of my retirement income.

TIA for any kind advice.

Do reconsider. By trying not to contribute to nation building, you end up giving much more away to these insurance companies. The next tax bracket is just 2% and since only 50% is taxable, that's about 1% tax on average. Do you really believe insurance companies earn less than 1% of the premium you paid?