For the past six years, I have been channelling spare cash into a savings scheme called Supplementary Retirement Scheme (SRS), enabling me to save on tax while I build my nest egg.
I have also tried to make my SRS savings work hard for me by investing in shares. I have nine counters in my SRS account, including StarHub and StarHill Global Reit. Both stocks have been a positive experience through their dividend income and share price appreciation.
I bought 5,000 StarHub shares in January 2010 at $2.13 apiece. The closing price was $3.60 on Friday. My 20,000 Starhill shares were bought two years later at 59 cents apiece, and on Friday, they closed at 81 cents .
Cash makes up 15 per cent of my SRS portfolio and I'm on the lookout for bargains amid the volatile market. Leaving my SRS funds uninvested will mean inflation eating away at my savings when I withdraw the cash at 62.
Though I wouldn't be working at that age, I expect to pay some income tax because I am likely to be enjoying rental income from my investment property while withdrawing from the SRS over 10 years.
Assuming I have $200,000 in my SRS account, and by spacing out the withdrawals over 10 years, this would work out to $20,000 annually. Half of the withdrawn amount, or $10,000, will be taxable.
Add this to my yearly rental of $40,000 and assuming zero personal relief, I'm looking at a chargeable income of $50,000, which will attract $1,250 in personal income tax.
The personal income tax rate is 0 for the first $20,000, 2 per cent for the next $10,000, 3.5 per cent for the next $10,000, and 7 per cent for the next $40,000.
If I had no income source other than my SRS, I wouldn't need to pay income tax as I can withdraw up to $40,000 of SRS funds yearly tax-free.
So assuming I have $200,000 in my SRS when I reach 62, I would withdraw $40,000 annually until it's depleted, which would take five years.
Next year, the SRS contribution cap for Singaporeans will increase to $15,300. It will be good if the Government also allows a longer period for individuals to spread out their withdrawals, which will lead to greater flexibility and tax savings.