Srs investment guide
Investment Personal Finance

Guide to investing with SRS funds for young adults (Updated 2020)

After spending a whole weekend on planning my taxes for the following year, I’ve discovered the world of SRS and the benefits it can bring me. Weeks of research later, I finally have a good grasp of the scheme and the strategies to optimise it. I’ll now be sharing my findings here. This is my analysis and guide on how to integrate SRS into your financial planning and invest it for maximum returns.

What is SRS

The Supplementary Retirement Scheme (SRS) is another retirement scheme introduced by the Singapore government. Unlike its more popular cousin the CPF, SRS is less known and talked about because contribution to it is voluntary. There’s also a misunderstanding that the SRS scheme will only benefit with very high income. That’s is not exactly right.

The main purpose of SRS is to encourage people to save for their own retirements. The benefit for contributors is, of course, the tax savings. You get a dollar for dollar deduction in your assessable income when you contribute to your SRS account. The maximum contribution for Singaporeans is $15,300 annually and $35,700 annually for foreigners.

Potential Tax Savings

Let me illustrate the potential tax savings.
Assumptions:
For the 3.5% bracket, we assume a $10,000 contribution.
For every other bracket above it, we assume a maximum $15,000 contribution.
We give the 37 years later number as you can only withdraw your money at 62 years old penalty-free. Assuming we are 25 this year.

Chargeable IncomeIncome Tax RateTax SavingsTax Savings 37 years later
$30,000 – $40,0003.5%$350$12,950
$40,000 – $80,0007%$1,071$39,627
$80,000 – $120,00011.5%$1,759.50$65,101.50
$120,000 – $160,00015%$2,295$84,915
$160,000 – $200,00018%$2,754$101,898
$200,000 – $240,00019%$2,907$107,559
$240,000 – $280,00019.5%$2,983.5$110,389.5
$280,000 – $320,00020%$3,060$113,220
> $320,000 22%$3,366$124,542

As you can see, this very simplistic model could already potentially save us up to $124,542 over the time of career. This is assuming we are not investing the saved money. What if we invest the more realistic $1,071 annual savings for a young graduate into an ETF that generates annual returns of 8%?

That’s a whopping $235,958 that you could have when you retire at 62. So now that I’ve captured your attention, let’s list down the key ideas of SRS.

  1. SRS allows you to save dollar for dollar contributions as deductibles on your assessable income for up to $15,300 for Singaporeans and $35,700 for foreigners.
  2. You can withdraw your funds only at 62 years old penalty-free.
  3. The SRS can be used to invest in various financial instruments.

How can I invest my SRS funds

Now that you’re convinced about the powers of SRS, you must be wondering how you can maximise the funds in your account. You should never leave SRS funds in the original account as it only earns a paltry 0.05% pa. Even though you can invest them, they do come with several restrictions that differentiates with normal cash investments. Here is the general list of instruments that you can invest in.

  1. Fixed deposits
  2. Bonds
  3. Single Premium Insurance
  4. Unit Trusts
  5. Stocks (Includes ETFs, REITs)
  6. Robo Investors

Fixed Deposits

Fixed Deposits (aka Fixed Ds) is one of the safer investing instruments out there. Many of the older generation folks prefer this form of investment as there is no downside risk to your principal investment. Your money is basically stuck with the bank until maturity.

Current rates (as of June 2020) of fixed deposits are around 1.2% pa with a maturity of about 2 years. In my opinion, these are money-losing investments as the rates are worst than the inflation rates. If you’re young, there are better opportunities for you than putting your money in fixed deposits. Therefore, I will not be elaborating more on this point.

Bonds

Bonds are relatively better yielding and slightly more risky than Fixed Deposits. However, most commercial bonds are only available to accredited investors (with net investible assets > $200k). For the most part, most of us will only be eligible SGS bonds or SSB.

Given the low-interest rate environment now, SSB interest rates are at an all-time low. The 10-year average yield stands only at 0.80%. At this rate, you’re better off going with fixed deposits.

Single Premium Insurance

Even though you’re allowed to use SRS for your insurance premiums, there is A LOT of restrictions to it. This is mainly for the purchase of endowment or annuity insurances. As the purpose of SRS is to prepare for retirement, naturally the products available are also catered for retirement planning.

In general, I am not a fan of insurance tied with investments as well as endowment plans due to its high management fees. However, I think there are people who can benefit from this if they are not particularly savvy investors.

Some banks such as DBS offers these insurances through their site. Alternatively, you can talk to your financial advisor for a more tailored plan.

Unit Trusts

This is where it starts to get interesting. You are allowed to use your SRS funds to invest in lower-cost unit trusts / mutual funds. There are multiple ways you can go about doing this but I find that the most cost-efficient way is to do it through FSMOne’s platform. FSMOne also has one of the greatest selection of unit trusts available.

However, note that unit trusts on FSMOne are only available for accredited investors. Therefore this can be a huge barrier for many of us who are just starting out with our investing journey.

Stocks

For regular investors, this might be the main reasons why you’re reading this post. Yes, we can use SRS funds to invest in stocks! If you’re currently purchasing stocks and holding them for the long run, this might even replace your current investment setup.

The bad news is that not every brokerage will allow you to use your SRS funds to invest with them. The general list of brokerages that allow you to invest with them will be the big banks such as DBS, Standard Chartered and OCBC. There is also no easy way for you to invest in overseas stocks unless you’d want to pay the hefty commission fees. New brokerages such as FSMOne or Tiger Brokers will not allow for SRS investments.

If you’re thinking of using DBS Vickers to make your stock trades in hopes of taking advantage of their $10 Cash Upfront fees, you’re out of luck as well. SRS transactions are charged the standard $25 trading fees, making constant trades with them prohibitively expensive.

BrokerTrading FeeMisc FeesCustodian / CDP
DBS Vickers0.12% min $25NoneCDP
OCBC securities0.275% min $25NoneCDP
UOB Kay Hian0.275% min $25NoneCDP
MayBank Kim Eng0.275% min $25NoneCDP
POEMS0.12% min $10Dividend handling fee min $1.07, Custodian fee (waivable)Custodian

As you can see, there’s really no cheap way to use SRS to invest. Even POEMS which is charging a minimum of $10 charges dividend handling fees that can very quickly eat into your returns.

I will recommend anyone looking to use SRS to invest in stocks to use DBS Vickers to purchase their stocks perhaps semi-annually to reduce the commission fees that they’ll have to pay.

RSP plans

After doing some research, I found that there are some banks that offer RSP plans for SRS accounts. This can be a lower-cost option for people who want to purchase blue chips regularly to do dollar cost averaging.

Investing with OCBC blue chip investment plan.
Source: OCBC

One such plan is the OCBC Blue Chip Investment Plan which requires only minimally $100 a month in investments. They have quite a good selection of stocks available at a very affordable fee. This is quite a compelling investment path for people looking to use their SRS funds.

Their fees are quite reasonable for people under the age of 30 as there are no minimum fees. Once you’re above 30, the $5 minimum becomes a larger barrier of entry to the product.

Robo Investors

Robo investors are a relatively new product in the world of investments. In very recent times, it has even gotten support for SRS investing! With their low management cost, this is the form of investment I’m most excited about.

StashAway invest SRS banner
Source: Stashaway.com
Endowus invest SRS banner.

Currently, there are 2 main Robo Investment platforms that accept SRS funding. They are StashAway and Endowus. To discuss each of these platforms, I’ll need a separate post to go in-depth into their individual offerings as there’s simply too much to talk about. There are no additional fees for using SRS to fund your investments on these platforms.

Instead of investing your SRS funds, you can park it in StashAway Simple for low risk returns.
Source: StashAway

StashAway has also recently come up with a new StashAway Simple product which allows you to invest your money in low-risk money market funds to get a 1.9% pa interest with no fees. This product is also applicable for SRS funds which makes it a very good place to park your uninvested funds.

Conclusion

I hope that by the end of this long article, I’ve convinced you to use the Supplementary Retirement Scheme as one of your retirement planning tools. It can be very beneficial for anyone looking to lower their tax obligations.

With the passing of time, I believe that the number of investment products available for SRS will only increase and current products will decrease in their pricing. As more and more Fintech companies come up, current players will be forced to make their products more competitive and that will only benefit us as consumers.


This article will be continually updated as new products come up or changes made to existing products.

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