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I have blogged about the advantages of having an SRS account before. Basically, if we are paying income tax, we should think of contributing to our SRS account. It is quite simple.
Now, I am holding a fair bit of cash in my SRS account. Excluding what I will be contributing by the end of this year, the cash portion of my SRS account is about $60,000 now.
Some might wonder why I am not putting the money to work. Even putting the money in a fixed deposit might get me $300 a year in interest income.
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| http://www.ecitizen.gov.sg/Topics/Pages/Tax-free-investments-with-the-SRS-scheme.aspx |
Well, I really want to keep the liquidity on hand to take advantage of any deep correction in the stock market which could happen anytime. Could something like this happen in the next 5 years? It could, couldn't it?
So, over a 5 year period, I would "lose" $1,500 for holding on to cash in my SRS account. Can I afford this? I think so. For me, this is the cost of holding on to liquidity.
However, the cost of not having liquidity could be higher since I could potentially make much more money by deploying the cash during a deep correction in the stock market.
The cash portion in my SRS account now forms one of my 4 war chests. The other 3 war chests are money in my savings accounts, money in my CPF-OA and money in my CPF-SA.
Related posts:
1. SRS: A brief analysis.
2. SRS, CPF-OA, CPF-SA. (Note publishing date.)
3. CPF or SGS.
4. Don't see money, won't spend money.
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18 comments:
3 of out 4 in CPF. I am thinking maybe more on gold or gov bond ?
Hi Ak,
Like to check with you, at what age did you join SRS?
I did some calculation on excel spreadsheet and believe the best age to join SRS will be around 45-47 years old. This is to avoid the situation where tax payable on withdrawal is higher than the tax saved on the contribution.
I make the assumption that the tax rate during the contribution period and withdrawal period is the same and total withdrawal is made at 62.
Hi Cory,
I don't think bonds are the place to be now. The risk of capital loss has heightened for people in bonds.
As for gold, I think of it more as a hedge against the inherent flaws of fiat currencies and not a war chest.
Of course, we could make some money trading gold and bonds if we are good at it but that is another topic.
Hi Solace,
I started an account when the SRS was first introduced in 2001, iirc. It was tough squeezing out the contribution money. I remember my first contribution was $7+K.
I know what you mean about starting at age 45. However, I like to start ASAP. Who knows what would happen in future? Could I be unemployed by age 45?
I mean I could stop contributing to the SRS anytime I want. It is voluntary. However, whether I would still have a job later on in life is something else. ;)
To push the case a bit more, consider that $1 saved from the tax incentive today is worth more than $1 saved 10 years later due to time value of money. ;p
Hi AK,
The scenarios that you have presentated have provided me much food for thought.
i calculated saving only based on math but have overlooked whether i still have income to contribute from age 45 onwards hahaha.
Always nice to hear your insight.
Kind of worry today that USD suddenly may crash out and no longer a reliable trading currency. The world will go to abyss and alternative solutions may emerge to keep trades moving. If this ever happen, inflation in US will be sky high as it lose is leverage.
Hi Solace,
Happy to share. We learn from one another! That is the spirit of ASSI! ;p
Hi Cory,
I know what you mean and I believe that it is a valid concern. What is the probability of it happening? I am not sure but if we can afford some insurance, why not?
So, I have some physical gold and silver. Paper gold and silver just won't cut it in the worst case scenario. Paper is only good for trading.
I think it's good to open a SRS account and contribute some amount now to 'lock in' the current statutory retirement age of 62, even if the calculations may show negligible savings for lower income at a younger age.
I feel it's a matter of time before the retirement age would be increased further so why not keep a SRS account now and it might be of use years later.
Eugene
Hi Eugene,
That is a very good point! It is something I did not consider when I started mine.
This is going to push Solace to open an account tomorrow. ;p
Hi,
If you are willing to forgo FD interests, why not still put cash into FD but will use it (forgo the interest only then) if and when opportunities arise? In this way, if the opportunities never come, or come later, you still get the interests. You could further break the whole amount to smaller amounts so that you don't have to forgo everything at one go?
Just my few cents worth of thought. No offense.
Hi Beh,
I thought of that. It is a lot of work having to visit banks to open and close SRS FD accounts. That puts me off. :(
Need money for wedding and renovation.... SRS has to wait lol
Hi JW,
We have different priorities, for sure. Congratulations! :D
Hi AK, when we use SRS to buy stock, will it be transferred to CDP account too? If so, if buy 1 lot with cash and 1 lot with SRS, then sell 1 lot, the money will go back to SRS account first?
Thanks!
Hi Ah John,
You have to choose whether you are buying or selling using cash, SRS or CPF. So, when you sell, depending on your choice, the money will be credited to your designated bank account (if you choose cash), your SRS account or your CPF account. The choice is yours.
Hi AK,
I believe that SRS will not be of interest to you given that you have retired from full time employment.
Ben
Hi Ben,
The SRS has no relevance to anyone who does not pay income tax.
So, you are right. :)
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