Everything You Need to Know About SRS (Part 2)

srs investing

Welcome back! I hope you’ve managed to absorb everything in the last post on SRS accounts. I know, no one likes taxes, but as the saying goes, “In this world nothing can be said to be certain, except death and taxes”

Now where did we leave off?

Oh yes, SRS Account benefits!

What Are The Benefits of SRS Accounts?

Now, with the 2.5% interest on CPF-OA balances and 4% on CPF-SA balances, we might have expected SRS accounts to yield similar interest rates. But alas, wrong again!

The interest rates on SRS accounts are a measly 0.05%.

Wait, what? 0.05%?

Quitting Your Job

Then what’s the point of putting money there, especially if you can’t take it out without penalties before retirement age?

Aha, that’s the point of SRS Investing!

SRS Investing

Unlike CPF, under the SRS, the range of available investments is much larger, with only a few hard exceptions such as direct property investment and certain forms of insurance products. Unlike CPF-OA and SA investing, there are no clear lists set out as the products available largely depend on the product providers out there and the products they wish to offer.

Broadly speaking, the range of product available include:

  • Bonds
  • Singapore Savings Bonds
  • Singapore Government Securities
  • Fixed Deposits
  • Shares
  • ETFs
  • Unit Trusts
  • Single Premium Insurance Plans

As for the exact range of products available, that would depend on the provider you are using. However, the good news is, you can look for products beyond the bank which you have signed up your SRS account with!

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Unit Trusts

Looking to unit trusts, POEMs has a handy Fund Finder which allows you to filter their unit trusts to those that are available to SRS. They currently have over 1,000 unit trusts available!

wow srs unit trusts

You might even notice that they have more aggressive growth options (as compared to what’s available for CPF), such as Technology focused funds like Aberdeen’s Standard Global Technology (SGD) Unit Trust. Last year, they returned 46.52% and in 2019, 38.97%! Not too bad for a pretty hands-off investment.

No, I am not sponsored by Aberdeen HAHA (but, hey, I’m open to it hehe)

ETFs

Sadly, things aren’t as exciting on the ETF front, with only SGX-listed ETFs being allowed to be purchased with SRS funds. However, this does mean that more exciting ETFs like the Lion-OCBC Securities Hang Seng Tech ETF  and the SPDR S&P500 ETF (on the SGX) can be purchased on SRS funds!

Robo-advisors

One category that is often not mentioned when discussing SRS investing (but should!) is robo-advisors!

These days, robo-advisors like Stashaway and Endowus are able to invest your SRS funds as well. This allows you to achieve respectable returns (~9% per annum) at relatively low cost (~0.8% per annum) through globally diversified portfolios managed by their fund managers!

The returns will, of course, vary based on your own risk levels, which they will set for you based on a questionnaire which in turn, determines the portfolio that you will be invested in.

This means you can also achieve income focused portfolios which generate returns through cash flow rather than capital gains. Note of course, that cash flow returns still stay in your SRS account and not in cash.

Closing Thoughts

Wow, it seems like the range of investments available to SRS funds is really wide and it seems like we have the flexibility to choose where we want to use our funds to make the most of it.

However, one main consideration I think many would have, especially if you’re on this blog (which is FIRE oriented), is to consider if SRS is the right place for you if you’re setting an aggressive FIRE target. For example, if you’re setting a retirement target age of 45, you’d have to wait 17 years to touch your SRS money (if you want it penalty-free of course!). And for many that might not be worth that tax savings in return. Of course, this is something that you’d have to evaluate and calculate yourself to determine the optimal choice for you.

That said, SRS is a great tool to aid in retirement planning for many and definitely something good to know about in your financial toolbox!

2 thoughts on “Everything You Need to Know About SRS (Part 2)”

  1. If you FIREd early (say at 45yo), you can withdraw your srs money straight away. You’ll get charged a 5% penalty, but previously you had saved maybe 20% in tax (depending on your bracket)? So it’s still worth doing even if you are not planning to lock up the money till 62.

    Your withdrawals will subject to tax, but assuming you are retired and have no other income, you can freely withdraw 20k per year.

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