SRS retirement plans

[maumu]

hmm. anyone bought one of those (single premium) annuity plans with SRS?

don't quite understand completely how it can help to spread out the payout more than the standard 10 years, and how the payout will be taxed.

supposed I have $500k in SRS and I dump $300k into an annuity plan that pays me $30k annually for life after 62 (for simplistic sake). then at the same time I choose to start withdrawing from SRS the balance $200k over 10 years (so $20k a year).

does it mean I need to be taxed for the annual withdrawal of $30k + $20k = $50k at 50% i.e. $25k which means I'll be taxed for $5k ($25k = $5k above $20k) for the first 10 years and subsequently no tax payable since I'm getting $30k which at 50% is $15k which is less than $20k for first taxable bracket?

 

[BBCWatcher]

hmm. anyone bought one of those (single premium) annuity plans with SRS?

don't quite understand completely how it can help to spread out the payout more than the standard 10 years, and how the payout will be taxed.

supposed I have $500k in SRS and I dump $300k into an annuity plan that pays me $30k annually for life after 62 (for simplistic sake). then at the same time I choose to start withdrawing from SRS the balance $200k over 10 years (so $20k a year).

does it mean I need to be taxed for the annual withdrawal of $30k + $20k = $50k at 50% i.e. $25k which means I'll be taxed for $5k ($25k = $5k above $20k) for the first 10 years and subsequently no tax payable since I'm getting $30k which at 50% is $15k which is less than $20k for first taxable bracket?

Yes, that's basically correct. Two caveats:

• The life annuity has to be fully SRS qualified. Manulife is currently the only insurer that offers such an annuity as far as I know.
• This taxable income flow is above whatever other taxable income you have. For example, if you have $20K of net taxable rental income in addition to your SRS withdrawals (including annuity payouts) then your income tax will be computed inclusive of the $20K of rental income.

 

[s0crates]

DBS Vickers has higher commission when buying stock, but isn't endowus also has 0.40% annual fees either?

Also thinking in terms of investing S&P 500, if going through OCBC 360 "Invest" category, there is also bonus interest (EIR 1.50% pa) - but it will be S&P 500 unit trust instead of stock, so it's a bit confusing which to choose for the best option

Yes, but Endowus usually offers some fund expense rebates that DBS Vickers doesn't offer. YMMV.

Endowus charges a recurring platform fee (as low as 0.3%p.a) whereas typically brokerage charges a one-off buy/sell transaction fee.

For cpf/SRS monies, there aren't much good low cost index options. Endowus have made a lot of low cost index funds/index fund like options available. These are often without fee rebate.

If you specifically want sp500 you should look at the iShares sp500 fund which is at 0.08%p.a. fund fee. As it is a synthetic fund, there is no dividend withholding taxes as well.

Yup so it's not taxed at 0.3%, not even at 0.15%. that's the lowest all on cost product that you can get for srs even compared to s27.

https://endowus.com/insights/sp500-index-funds-us-stocks

 

[petromax]

Yes, but Endowus usually offers some fund expense rebates that DBS Vickers doesn't offer. YMMV.

But tax inefficient (higher cost) and apparently U.S. estate taxable if it's the SGX-listed S&P 500 fund.

Regarding US estate tax, what if in the event of my demise, my beneficiary quickly logged in to my brokerage account, sell all stocks and withdraw the money ? How does the brokerage know my death if nobody inform them?

 

[sglandscape]

Regarding US estate tax, what if in the event of my demise, my beneficiary quickly logged in to my brokerage account, sell all stocks and withdraw the money ? How does the brokerage know my death if nobody inform them?

Correct in theory but need to have that planned out upfront. Most people don't or even know the login

 

[BBCWatcher]

Regarding US estate tax, what if in the event of my demise, my beneficiary quickly logged in to my brokerage account, sell all stocks and withdraw the money ? How does the brokerage know my death if nobody inform them?

You’re literally asking how to commit illegal tax evasion.

 

[BBCWatcher]

If you specifically want sp500 you should look at the iShares sp500 fund which is at 0.08%p.a. fund fee. As it is a synthetic fund, there is no dividend withholding taxes as well.

Yup so it's not taxed at 0.3%, not even at 0.15%. that's the lowest all on cost product that you can get for srs even compared to s27.

You should think about how this actually works. The synthetic fund attempts to track the index using futures contracts. Who sells those contracts? Counterparties, hopefully (but not guaranteed!) financially strong ones. So that’s the first point to be aware of, that synthetic funds come with some counterparty risks.

The other important point to be aware of is that holders of the actual securities (stocks in this case) owe/pay dividend taxes. And they’re not charities. If/when they participate in derivatives (futures contracts) they’ll only make contract offers that are consistent with their real after tax experiences. In other words, they have to be adequately compensated for any dividend taxes within those futures contracts. Exactly how that all shakes out is complicated.

 

[sglandscape]

You’re literally asking how to commit illegal tax evasion.

To add, the easiest workaround is to buy ETF listed in the UK, those are exempt from estate duty.

 

[s0crates]

The other important point to be aware of is that holders of the actual securities (stocks in this case) owe/pay dividend taxes. And they’re not charities. If/when they participate in derivatives (futures contracts) they’ll only make contract offers that are consistent with their real after tax experiences. In other words, they have to be adequately compensated for any dividend taxes within those futures contracts. Exactly how that all shakes out is complicated.

Nope. Factually wrong. The contracts are S&P 500 derivatives, not a combination of derivatives of the 500 individual stocks. The issuer is selling the exposure for the S&P500 index without DWT exposure. So it will have no DWT exposure.

 

[BBCWatcher]

Ah, OK then. But the S&P 500 Index doesn’t pay or reflect dividends. So sure, there‘s no dividend tax. Because there are no dividends. If that’s what the fund is tracking then that’s what should happen.

On edit: The prospectus says that’s not what they’re doing. They say they‘re benchmarking again the S&P 500 Index plus net dividends. And using derivatives (futures contracts) to do it.

 

[Value.Matrix]

hmm. anyone bought one of those (single premium) annuity plans with SRS?

don't quite understand completely how it can help to spread out the payout more than the standard 10 years, and how the payout will be taxed.

supposed I have $500k in SRS and I dump $300k into an annuity plan that pays me $30k annually for life after 62 (for simplistic sake). then at the same time I choose to start withdrawing from SRS the balance $200k over 10 years (so $20k a year).

does it mean I need to be taxed for the annual withdrawal of $30k + $20k = $50k at 50% i.e. $25k which means I'll be taxed for $5k ($25k = $5k above $20k) for the first 10 years and subsequently no tax payable since I'm getting $30k which at 50% is $15k which is less than $20k for first taxable bracket?

You are right in most aspect.

But do not get deceived. Other SRS plans are not annuities. So when it's withdrawal time, at the end of 10 years, the surrender value will be considered instead of the yearly withdrawal for the lump sum. So be very careful when buying. The FA should know this caveat too.

 

[maumu]

You are right in most aspect.

But do not get deceived. Other SRS plans are not annuities. So when it's withdrawal time, at the end of 10 years, the surrender value will be considered instead of the yearly withdrawal for the lump sum. So be very careful when buying. The FA should know this caveat too.

sorry could you elaborate more on what you mean by surrender value at the end of 10 years?

so you mean once I completed the 10 year of withdrawal of the non-annuity portion ($200k in my example), I will be forced to also pay up the tax based on the remaining surrender value of the annuity plan?

 

[Value.Matrix]

sorry could you elaborate more on what you mean by surrender value at the end of 10 years?

so you mean once I completed the 10 year of withdrawal of the non-annuity portion ($200k in my example), I will be forced to also pay up the tax based on the remaining surrender value of the annuity plan?

Yes. As long as it is not categorised as an annuity plan by MAS . That's why you have to be very careful buying SRS approved plans.

Edit: from my knowledge, no SRS plan currently is annuity plan.

 

[maumu]

Yes. As long as it is not categorised as an annuity plan by MAS . That's why you have to be very careful buying SRS approved plans.

Edit: from my knowledge, no SRS plan currently is annuity plan.

uh I thought there are 3 as shared by some folks here...

I'm actually looking at the one by Manulife (https://www.manulife.com.sg/en/solutions/save/retirement/retire-ready-plus.html).

probably should be doing this properly via an agent I supposed, since there're restrictions/caveats which not everyone here would know.

 

[Value.Matrix]

uh I thought there are 3 as shared by some folks here...

I'm actually looking at the one by Manulife (https://www.manulife.com.sg/en/solutions/save/retirement/retire-ready-plus.html).

probably should be doing this properly via an agent I supposed, since there're restrictions/caveats which not everyone here would know.

Double confirm. Things always change.

 

[linzw00]

Lately i keep receiving uob asset mgt on my feeds regarding their latest offering srs funds. Eg, they claim their most basic offers up to 6%pa, but fine prints on sales charge of 3% and mgt fee of 2%, etc. Like dat means effective its 1% assuming the funds grow as expected?

Is my understanding correct?

 

[BBCWatcher]

Lately i keep receiving uob asset mgt on my feeds regarding their latest offering srs funds. Eg, they claim their most basic offers up to 6%pa, but fine prints on sales charge of 3% and mgt fee of 2%, etc. Like dat means effective its 1% assuming the funds grow as expected?

Is my understanding correct?

Not quite.

Let's assume the fund actually grows at 6% per annum. That's certainly not a given, but let's suppose. And let's suppose you invest $10,000. The sales charge is deducted up front, so you're actually investing a net of $9,700. And then the management fee is deducted every year, so you're actually earning 4% per annum starting with $9,700. That'll mean you have (at the end of each year):

• $10,088.00 (+0.88%)
• $10,491.52 (+4.00%)
• $10,911.18 (+4.00%)

etc. So as you can see you really get whacked the first year, and then you get whacked pretty hard (although less whacked) every year thereafter.

This is a terrible deal, of course. I suggest you continue shopping for a better deal.

 

[linzw00]

Not quite.

Let's assume the fund actually grows at 6% per annum. That's certainly not a given, but let's suppose. And let's suppose you invest $10,000. The sales charge is deducted up front, so you're actually investing a net of $9,700. And then the management fee is deducted every year, so you're actually earning 4% per annum starting with $9,700. That'll mean you have (at the end of each year):

• $10,088.00 (+0.88%)
• $10,491.52 (+4.00%)
• $10,911.18 (+4.00%)

etc. So as you can see you really get whacked the first year, and then you get whacked pretty hard (although less whacked) every year thereafter.

This is a terrible deal, of course. I suggest you continue shopping for a better deal.

Many thks! If i am not wrong, when one sells off the funds, there is probably another sales charge or transaction fee?

Nontheless, thks for confirming my doubts, i do think its not a great deal as advertised.

 

[BBCWatcher]

If i am not wrong, when one sells off the funds, there is probably another sales charge or transaction fee?

Could be.