SRS

[30plus]

i would say the penalty is reasonable. being an optional retirement scheme, it does not suit everyone. it is not a saving account for your emergency money as well. so you need to make a decision before you put in money.


if your marginal tax rate is less than 8.x% bracket, you should consider not using it because the saving is small.

now assume you are in this bracket, you save 8% tax upfront. at retirement, you can spread the withdraw in 10 years and will be taxed for 50% of it. assuming you do not have income at that time and tax structure does not change, rough computation can show that you will pay pretty negligible tax.

if you need to withdraw early, then the question is why? you need to buy a house urgently? need to pay a ransom? to me, the most reasonable case is that you suddenly lost income. if this is the case, then you need to pay 5% penalty + currently tax. if you lost income, then the total penalty is not far away from the tax you have saved.

btw, once you open the SRS account, your withdraw age is fixed. further increase on retirement age does not have impact on you.

[MrsTan]

Yap, the withdrawal age is locked in the year u open the a/c, I just opened it last year and put in $1k in case they revised the retirement age this year.

[daddy2007]

30plus:

btw, once you open the SRS account, your withdraw age is fixed. further increase on retirement age does not have impact on you.

Actually what I am afraid most is that the government will change/tweak some policies on SRS account down the way. One will never know what rules will be changed 10 - 15 years later

Just like money in the CPF. Every now & then got new rules & policies. Don't really feel like the $ in the CPF is mine. All subject to the latest rules & regulations....sigh

[financial_guru]

daddy2007:

Actually what I am afraid most is that the government will change/tweak some policies on SRS account down the way. One will never know what rules will be changed 10 - 15 years later

Just like money in the CPF. Every now & then got new rules & policies. Don't really feel like the $ in the CPF is mine. All subject to the latest rules & regulations....sigh

At least SG govt good in giving extra 1% interest for 1st 60K in CPF accounts. If you have spare OA to spare, there are some CPF investment schemes to consider.

[starlight1968sg]

daddy2007:

30plus:

btw, once you open the SRS account, your withdraw age is fixed. further increase on retirement age does not have impact on you.

Actually what I am afraid most is that the government will change/tweak some policies on SRS account down the way. One will never know what rules will be changed 10 - 15 years later

Just like money in the CPF. Every now & then got new rules & policies. Don't really feel like the $ in the CPF is mine. All subject to the latest rules & regulations....sigh

Changes are expected and we have totally no control at all.

Change is a constant. :roll:

[30plus]

daddy2007:

30plus:

btw, once you open the SRS account, your withdraw age is fixed. further increase on retirement age does not have impact on you.

Actually what I am afraid most is that the government will change/tweak some policies on SRS account down the way. One will never know what rules will be changed 10 - 15 years later

Just like money in the CPF. Every now & then got new rules & policies. Don't really feel like the $ in the CPF is mine. All subject to the latest rules & regulations....sigh

What you said is correct. It is kind of sovereign risk.

The problem is that there is not much you can do if you want to live in this country, or any country. You can only hope things will not go that bad.

[financial_guru]

30plus:

daddy2007:

What you said is correct. It is kind of sovereign risk.

The problem is that there is not much you can do if you want to live in this country, or any country. You can only hope things will not go that bad.

You can avoid sovereign risks by going for CPF investment schemes in CPF approved unit trusts that invest globally.
Some don't want to take the risk though.

[30plus]

?? I think you misunderstood. What I mean is the risk of local legislation. If the gov says CPF is nationalised, it does not matter where you invest.

[financial_guru]

30plus:

?? I think you misunderstood. What I mean is the risk of local legislation. If the gov says CPF is nationalised, it does not matter where you invest.

:oops:

[yupapa]

Intended to withdraw early to make other investment to counter the inflation.

re the penalty. Say I put in 10K 3 years ago, and say my tax bracket is 10%. I saved 1K.
Now, say the amount has grown into 20K after some shares investment. If I were to withdraw now, assuming the tax bracket remain unchanged for easy calculatation, I would have to pay penalty of 3K (5%+tax on 20K). To me, that's very discouraging, just because I changed my mind re how best to preserve the value of my savings. It is my money after all, not govt grant/share or anything of that sort.

30plus:

i would say the penalty is reasonable. being an optional retirement scheme, it does not suit everyone. it is not a saving account for your emergency money as well. so you need to make a decision before you put in money.

if your marginal tax rate is less than 8.x% bracket, you should consider not using it because the saving is small.

now assume you are in this bracket, you save 8% tax upfront. at retirement, you can spread the withdraw in 10 years and will be taxed for 50% of it. assuming you do not have income at that time and tax structure does not change, rough computation can show that you will pay pretty negligible tax.

if you need to withdraw early, then the question is why? you need to buy a house urgently? need to pay a ransom? to me, the most reasonable case is that you suddenly lost income. if this is the case, then you need to pay 5% penalty + currently tax. if you lost income, then the total penalty is not far away from the tax you have saved.

btw, once you open the SRS account, your withdraw age is fixed. further increase on retirement age does not have impact on you.