During the National Day Rally 2019, Singapore government announced that retirement age will be raised to 65 by 2030. In addition, it was also announced that the proposed adjustments will not affect CPF withdrawal policies or age. The adjustments are necessary due to Singapore ageing workforce and the need to ensure that Singaporeans will be financially independent in their twilight years. Nonetheless, the increase in retirement age will impact the Supplementary Retirement Scheme (SRS) withdrawal age as it is pegged to the statutory retirement age.
In this article, I will share my view on how the increase in statutory retirement age will impact the SRS withdrawal. As usual, this article is not meant to be a form of financial advice. Please consult a financial advisor if you have doubts. I am writing this article because I am planning to open an SRS account and is sharing my research with readers. If there is any mistake contained within this article, please let me know.
10-year SRS withdrawal period
Although both CPF and SRS serve to provide the retirement needs, there are major differences between the two schemes. CPF focused primarily in housing, medical, education and retirement needs. CPF monthly contribution is also compulsory. On the other hand, SRS contribution is voluntary and provides tax relief. Most importantly, there is more flexibility when it comes to SRS withdrawal.
Unlike CPF withdrawal, you can make SRS withdrawal anytime. However, if the SRS withdrawal is made before the statutory retirement age prevailing at the time of the first contribution, 100% of the sum withdrawn will be subject to tax. A 5% penalty for premature withdrawal will also be imposed.
But according to Inland Revenue of Singapore (IRAS), an interesting feature of SRS withdrawal is “If you have already opened an SRS account and made your first contribution, any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you (i.e. you can still begin your first penalty-free SRS withdrawal when you reach age 62).”
Based on my interpretation, what the above means is that if you made a contribution between now and 2030, you can still make SRS withdrawal without incurring penalty at the age of 62 even though the statutory retirement age is raised to 65 in 2030. But if you start to make your first SRS contribution only in 2030, then any SRS withdrawal before the age of 65 will attract penalty.
The optimal amount of SRS savings should be $400,000. This is because [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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