Should a young person contribute to his CPF or SRS?

A conversation with a reader:

Hi AK,

As i browse through your blog, I realized that I do have another question. 

I am wondering if you would recommend individuals to open a SRS account to have tax relief first or to top up and ensure our CPF has met the mim sum first? 

Which option would be a long term wiser strategy to go for?

Regards,
C

My reply:

Hi C,

The CPF is always my first preference because it earns relatively attractive risk free returns of 2.5% to 5.0% per annum. 

For MS-Top Ups of up to $7K a year to the CPF-SA, we will enjoy income tax relief too. 

The downside is the minimum lock up period to age 55.





The SRS is called "Supplementary" for a good reason. 

If our income is higher and we would like to enjoy more income tax relief, the SRS is a good idea to help us save towards retirement adequacy.

There is some flexibility for early withdrawal with the SRS (but this comes with a penalty) while there isn't any such option with the CPF. 

The downside is that the interest rate for money in our SRS account is very low and we will have to think of investing for higher returns.

Best wishes,
AK

Reader's reply:

Hi AK,

Thanks for your prompt response. 

I now see the CPF as a better option first due to the interest of 5%. 

I am wondering that if currently I have not met the criteria of 20k for OA and 40K for SA before being able to utilize the funds for investment, should I still go ahead and top up my SA? 

(I am going to be 25 this year, and I have just started working for a year, so I do not have a lot of money in my cpf, but I am planning for the future first). 

If I top up my SA now, it's more for tax relief now. I am about 32k away from the min 40k right now, and if i contribute 7k yearly, it will be 5 more years at least before I can use the funds for investment. 

I am quite confused so to what's the best way for me now. 

Regards,

C

My reply:

Hi C,

I think you know what the CPF and SRS are for now and how they work.

The next thing you need to do is to be very clear about what you want to achieve. 

Then, act accordingly.

Take your time to make a decision you are comfortable with. 

There is no need to rush.  :)

Best wishes,
AK







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1. Achieving Level 1 Financial Security.
2. Securing risk free returns early for retirement.
3. Retiring before 60 is not a dream.
"Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer." Charlie Munger.