Planning for a joyful Christmas and a prosperous New Year

SINGAPORE – Some friends mentioned a few days ago that their expenses typically skyrocket in December due to their holidays overseas, Christmas parties and lavish gifts for loved ones. 

“The biggest expense is the year-end holidays,” says one.

There are plenty of people in the same boat. Mr Kelvin Li, co-founder and chief financial officer at Milieu Insight, a research and data analytics company, notes that Singaporeans are the most frequent travellers towards the end of the year compared with their peers in South-east Asia.

Travel might be the biggest cost but it’s not the only one, by any means, as my friend knows all too well.

“The next big expense is Christmas gifts,” she says. “My husband and I also love to host Christmas parties. We spend about $400 each time for a party of six to eight, and that’s excluding the champagne and wine.”

A whole roast turkey can cost anywhere from $73 at NTUC FairPrice and $95 at Cold Storage to more than $175 from hotels or restaurants. Include the Christmas ham and that will add a further $50 to $150.  

Another friend quipped that it doesn’t help that her husband’s birthday also falls in December. 

It’s easy to get caught up in the festive spirit and lose sight of our financial goals. But with a bit of planning and self-control, we can enjoy the holidays without breaking the bank.

In fact, there is no better time than now to take stock of your financial decisions and consider the next steps.

Here are some suggestions for action:

Supplementary Retirement Scheme (SRS)

If you have not contributed to your SRS account this year, it is timely to do so before Dec 31 as it will qualify for tax relief in the following Year of Assessment, says Ms Lorna Tan, head of financial planning literacy at DBS Bank.

Note that a personal income tax relief cap of $80,000 applies to the total amount of all tax reliefs claimed.

It is no wonder that banks generally see a spike in balances during this time of the year. Look out for SRS promotions from DBS, UOB and OCBC, which administer SRS accounts.

Introduced in 2001, the voluntary SRS complements the Central Provident Fund (CPF) by providing wage earners with an avenue to build up their nest eggs and get some tax relief at the same time. The annual contributions are capped at $15,300 for Singaporeans and permanent residents (PRs) and $35,700 for foreigners.

You can withdraw your savings – including investment gains – penalty-free on or after the statutory retirement age that prevailed when you made your first SRS contribution. Half of the sum will be subject to tax and you can spread your withdrawals over 10 years to take advantage of greater tax savings.

With the statutory retirement age of 63 going up in phases to 64 in 2026 and 65 in 2030, you could join the SRS now, say with $1, to lock in your penalty-free SRS withdrawal age. 

Figures show that 19 per cent of SRS funds, or about $3.5 billion, were sitting idle as at the end of 2023, earning a paltry return of 0.05 per cent.

It is prudent to make them work harder for you by investing wisely in higher yielding investment products and take advantage of the power of compounding over the long term, Ms Tan says.

Risk-averse investors can consider investing in fixed deposits, Treasury Bills or the safe and flexible Singapore Savings Bonds. As you gain more confidence in investing, you could try other products like unit trusts and stocks.

Ms Tan says: “I have been contributing to SRS for several years and investing the funds fully. Having missed out one year due to procrastinating till the end of the year, I have decided to contribute to SRS at the start of each year rather than later.”

Retirement Sum Topping-up Scheme

This scheme allows you to build your retirement savings by topping up your own CPF account or that of someone else, including your loved ones. You can top up your own or your loved ones’ Special Accounts (below age 55) or Retirement Accounts (RA) for those 55 and above.

You can get tax relief of up to $16,000 per calendar year if you make top-ups for:

a) Your parents, parents-in-law, grandparents, grandparents in-law, spouse or siblings, subject to certain conditions;

b) Yourself (or your employer makes a cash top-up for you).

However, you can enjoy tax relief – subject to the overall personal income tax relief cap of $80,000 – for cash top-ups to your own or your recipient’s accounts only up to the current Full Retirement Sum (FRS) which is $205,800. Cash top-ups beyond the current FRS will not be eligible for tax relief. 

Those under 55 who are looking to help their spouses build up their retirement savings can transfer their CPF savings above the prevailing Basic Retirement Sum (BRS) of $102,900. 

For members above 55, it will be their applicable BRS before they transfer. When it comes to transfers to parents and grandparents, members can move their CPF savings after setting aside the prevailing/applicable BRS, if they own a property.

The recipients will benefit from the extra interest that will be paid in the respective accounts and there is peace of mind as they will have their own source of retirement payouts.

Ms Tan did a cash top-up to her father’s RA earlier this year to enjoy some tax relief and take advantage of the interest earned (up to at least 6 per cent). 

“I also did a top-up in my RA to the prevailing Enhanced Retirement Sum of $308,700 and will continue to do so each year to enjoy higher monthly payouts when I start my CPF Life payouts at age 65,” she says.

Take note that the CPF Special Account (SA) closes in the second half of January 2025 for members aged over 55.

If you are yet to turn 55 – say you hit this age in June 2025 – the RA will be created as per usual and the SA will be closed on your birthday.

Money from the SA will flow to the RA up to the Full Retirement Sum, with any excess channelled to the Ordinary Account (OA).

It is timely to consider how you can work your CPF funds harder and potentially achieve returns higher than the OA’s 2.5 per cent yield.

The Enhanced Retirement Sum will be further “enhanced” to four times the Basic Retirement Sum, or $426,000, from January 2025. This gives room for members who wish to top up their RA for higher payouts. 

“And if you have not done so, do consider topping up your CPF account or that of your loved ones – before the end of this month – to potentially enjoy tax relief in Year of Assessment 2025,” Ms Tan says.

Reining in rising healthcare costs

Rising healthcare costs are a top concern for many Singaporeans who will be facing the double whammy of increasing premiums from the private medical Integrated Shield Plans (IPs) and riders, and MediShield Life.

Following the end of the freeze on IP premiums at the end of August 2024, nearly all IP insurers have raised their premiums for IPs and riders. 

Ms Tan notes: “Did you know that the most expensive lifetime IP premiums with riders can reach up to $842,000? This figure does not include premiums for MediShield Life, which will also increase by an average of 22 per cent after enhancements to the national health insurance scheme were announced in October 2024.”  

Recently, five insurers raised premiums by double digits for their base IPs, focusing mainly on private hospital plans, while Income Insurance raised premiums across all ward types.

Income’s IP premiums for private wards rose by an average of 21 per cent without riders and by 35 per cent when riders are included. The increases for its restructured hospital base plans are 14 per cent without riders, and 23 per cent with riders.

Here are some factors to consider for people with IPs: Do you continue with your plan or downgrade to a lower ward plan and/or rider? What savings would you enjoy? What benefits would you have to forgo? Only a review will allow you to properly weigh up the benefits and savings.

Housing loans

A home loan is a long-term commitment that requires careful planning. With interest rates projected to head south due to the US Fed rate cuts, it is timely for homeowners to review their mortgage package. In fact, a regular review will help to ensure that it stays relevant to your financial needs while potentially generating some savings. 

Options include switching your mortgage to another package, or right-sizing your loan amount via repayments.

Rates for most mortgage packages may start to increase from the third or fourth year onwards, so that is an appropriate time to check for attractive mortgage packages that would help you save on interest.

Before taking the plunge, check for any penalty as most home loan packages have a two- to three-year lock-in period. Also, evaluate if a refinancing package gives the flexibility to cater to changes, such as the intention to sell the property and rising interest rates.

Another consideration is the switching costs of refinancing a mortgage or home loan to another bank, such as legal fees and valuation cost. Some banks offer a subsidy to help customers defray some of these costs.

Remember, small steps can lead to significant long-term rewards and a better start to 2025. A blessed Christmas and Happy New Year to all!