This is why you need to consider CPF life, Singapore Saving Bonds, SRS Investment in your total retirement planning
CPF Life, Singapore Saving Bonds, and Supplementary Retirement Scheme are alternatives where you can consider to factor in your overall retirement planning. According to the Ministry of Manpower; Retirement and Re-employment Act (RRA), the minimum retirement age for anyone is at the age of 62 years old. Before that, your company has no right to ask or coerce you into retirement prior to that age. This immunity is given to EVERY Singapore citizen or Permanent Resident, or if you joined your company before the age of 55.
As the costs of living in Singapore continue to soar, in order to keep up with your current lifestyle and to survive your retirement years, these are some schemes that we will need to understand.
Loy Yi Zhou, Founding Director at Chamberwealth explained that these schemes offer some unique benefits. “They are a type of forced-saving product, which exemplifies the effectiveness of the old school way of investing,” Loy said. “They also offer other benefits like tax reliefs and guaranteed returns.”
CPF Life simply represents Lifelong Income For The Elderly. This scheme that the government has implemented will provide a lifelong payout to Singaporeans and PRs on a monthly basis as long as they are still around. Data from the Singapore Department of Statistics has shown that the average life expectancy of Singaporeans will only progress over time as the younger generation are more savvy when it comes to healthy living.
With CPF Life, you need not solely rely on your personal savings to tide over as there will be lifelong payouts which you will get to reap upon retirement. There are several CPF Life plans to choose from to cater to your needs, there is a standard plan which allows you to receive higher monthly payouts, a basic plan where you will receive lower monthly payouts, but have option to bequeath more to your loved ones, and last but not least, an escalating plan that delays the disbursement of the payout to a few years later, but get a 2% increment yearly (which is backed by the government).
For illustration purposes, below are some tables extracted from CPF Life to exemplify what kind of payouts can you expect from the respective plans.
Singapore Savings Bonds
Singapore Savings Bonds, yet another revenue stream Singaporeans can gain good returns with minimal risk. SSB works just like any other bonds that are available in the market. When purchasing a bond, you are in some ways “loaning” money to the issuer. In SSB’s case, it is to the Singapore Government. Some may argue that investing in an SSB is much safer than putting their money in the bank.
By investing your money in SSBs, the government will provide you a payout with interest every half a year. And unlike any other bonds, you can hold SSBs for as long as you wish (up to a maximum of 10 years) without any lock-in periods. The longer you put your money with them, the higher the returns. Furthermore, there isn’t any penalty if you were to liquidate the bond earlier than expected.
SSBs has caught the attention of many Singaporeans as their interest rates are quite attractive (much more attractive than fixed deposits). If you are someone who is quite bothered about taking risks, this would be another investment product which is highly recommended as this close to 0% risks and there is hardly any other investment like it. For those who are after low-risk investments, this is a good source to stash some money away for savings sake. Anyone that is 18 years of age can invest in SSBs and they can be bought for a minimum amount of $500.
P.S. SSBs are exempted from tax, principal amount is guaranteed, and the Singapore Government has an “AAA” credit rating.
Supplementary Retirement Scheme
The SRS is a voluntary scheme which is said to complement one’s CPF savings as they plan for their retirement. Singaporeans are able to contribute any amount they wish to and through multiple times within the year that is subjected to a capped number of times. The SRS is being operated by credible financial institutions such as DBS bank, UOB bank, OCBC bank and regulated by (IRAS) Inland Revenue Authority of Singapore. The more you deposit and contribute, the more benefits and rebates you will reap.
Not only are you able to make use of the funds in your SRS account to invest in a variety of financial instruments such as local shares, REITS, ETFs, Bonds, Unit Trusts, and other ILPs you are also able to reduce your taxable income. For instance, if you were to contribute $10,000 into your SRS account, and if your annual taxable income is amounted to $100,000, you will only be taxed $90,000 instead for that particular year. (Maximum capped of $80,000 personal income tax relief per year of assessment).
Although you are not able to invest in SSB at the moment with your SRS funds, there are still a wide range of financial products out there for you to peruse and scour.
Upon withdrawal of the SRS funds, you will be exempted for the first 50% and the next 50% is taxable only. withdrawals can only be done when you have reached the age of 62 (retirement age). After which, the SRS withdrawal can be further split across a span of 10 years to enjoy a maximum tax savings benefit. The drawback to withdrawing funds before your retirement would be an additional 5% penalty on top of withdrawal
For those who are making large income tax payments every year, an SRS account would be a no brainer for you as it aims to provide those contributing to their CPF with tax savings.
Why Do You Need To Plan For Retirement?
Beyond all of this, much time is needed to put all of these investments in place for a well thought out plan. By practicing self-discipline and religiously saving up, you will be able to have a smooth transit into your retirement as you age. When you retire, it means that you are no longer working, where your monthly income will come to a standstill. But there is no stoppage when it comes to your living expenses for survivability. By then, you should have already cleared most outstanding loans especially your house. Whatever expenses that you should incur should mainly consists of only transportation, healthcare, and food.
If your retirement planning is well planned, you would be able to receive guaranteed income, from several external layers of revenue streams besides the above mentioned (CPF LIFE, SSB, and SRS) you will be able to retire effortlessly or even have some extra cash to travel around the world. These are ways to aid Singaporeans and increase their chances of successfully retiring without any financial difficulties at all.
However, Singaporeans should also be aware of its drawbacks. As Chamberwealth’s Loy explained, these schemes could exacerbate liquidity issues if investors do not keep additional funds set aside for unforeseen circumstances. “As most of these strategies involve tying down your cash for a period of time, if you require a large sum of money for certain emergency situations, these products may be a tripping stone.”