How Much Must You Earn (And Invest) For It To Make Financial Sense To Top-up Your Supplementary Retirement Scheme (SRS) Account This season?

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When it comes to the Supplementary Retirement Scheme (SRS), common questions many people would have are:

“At what income tax bracket would it make sense for me to bring about my SRS account?”

“At what age should I start contributing to my SRS account?”

“How will i maximise tax savings yet minimise future tax expenses when I withdraw from my SRS account?”

Tax rates and your age are known quantites, and investment returns could be modelled. So, answers to the above questions can in fact be derived mathematically.

In this short article, we'll represent the questions like a math problem and find probably the most optimal solution, and then discuss trade-offs and decisions you have to make.

The Problem Sum

John is 35 years old this year, and he is earning a modest income that puts him inside the 7% tax bracket. He wants to maximise the tax savings by utilising his SRS account, putting in the maximum $15,300 for tax relief. He promises to withdraw his SRS account over 10 years past his retirement age. He thinks that he can make a 7% return on his investment.

Would topping up his SRS account now make him better off financially, assuming that the wages tax rates will not change?

Tackling The Problem Sum: The Independent Variables

The above Problem Sum could be converted into the below formula:

J = ax+ by-cz

The independent variables, or even the values x, y, z within the above formula, is fairly simple. These is going to be things like John's

– Age

– Tax bracket

– 7% returns on investments

For the purpose of making this analysis simpler, we'll assume that figures like the $15,300 committed in SRS, income-tax-rates are fixed numbers (or a, b, c in the above formula).

Defining the Answer – The Dependent Variable

The dependent variable, or even the outcome that we are trying to model, would be to see if John is better off topping up or otherwise topping up the SRS account. To make sure that an apple to apple comparison is made, let us assume that John is only willing to commit $15,300 of pre-tax savings to take a position.

Fleshing out the workings for the dependent variable:

Let H be 10-year yearly income, net of taxes that John's SRS account will give him when he withdraws his SRS monies while staying invested

Let I be 10-year yearly cashflow, that John's post-tax cash account will give him.

H – I = J where J is the upside (or downside when the value is negative) from investing through SRS rather than using post-tax monies.

For H, Do note that since John would likely have include a huge sum of money in SRS, and given that it compounds at 7%, his portfolio might have grown to $1.14 million by the time he is 62 years old. Even though only 50% of the amount withdrawn in the SRS account is taxable, the sheer size John's portfolio means that he will be taxed.

Remember that if John paid his taxes, being in the 7% tax bracket, he would have $14,229 to invest in a portfolio that compounds at 7% return within the 26 years

The Outcome

When John is 62 years of age, his SRS account will grow to $1.14 million. Net of income tax, John will have a yearly cashflow close to $159,000 liquidating his SRS account over 10 years.

If John were to invest using post-tax monies, John's portfolio will grow to $1.06 million. John will have a yearly cashflow of $151,000 investing with post-tax monies.

John (or value J) is better off by $8,000 (put together) a year, just by investing through SRS rather than investing through post-tax monies.

Applying The Calculations For your Own Situation

Of course, you are not John – your tax bracket is different, your age is different, your expectations of investment returns can also be most likely different as well. To apply the principles to your unique situation, we are able to use sensitivity tables.

With a range of values for the independent variables, listed here are the situations when SRS can work for you, with red highlights being cases where it does not make financial sense for you:


John's case (35-year-old, 7% income tax bracket, 7% return) is highlighted in yellow above. As you can see from the above table, the larger your tax bracket, the more you save through SRS, even though you may be paying more taxes with an absolute basis.

Just like how a dollar now is worth more than a dollar in the future, a tax dollar saved now's worth more than a tax dollar paid later on. This is because the tax savings could be compounded and grown to cover higher taxes in the future.

Age Matters

Here's how starting at different ages affects the upside that we can get from SRS:

However, the same doesn't apply for investment returns. The larger the assumed return on investment, the worse from you are.

The intuitive logic behind it's very simple. SRS account is a tax deferral scheme, so if you're expecting a high investment return, it is better to be taxed now and then invest the remainder, compared to investing now and be taxed later when your wealth has grown significantly.

Top Up Your SRS Account By 31 December 2021?

You may be tempted to save on taxes for 2021 by topping your SRS account by the year's end, but don't forget that SRS is ultimately a long-term commitment where your funds are locked in until retirement age.

Before you invest in topping up your SRS account, make sure you have sufficient liquidity to take care of your medium to long-term large ticket expenses, such as buying a new property, in order to fund your children's tertiary education aspirations.

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Endowus is a MAS-licensed financial advisor that leverages technology to make investing accessible to all. If you enjoyed reading this article from Endowus Insights, you can subscribe to their weekly memo. Follow Endowus on LinkedIn or connect on Facebook as they bring you financial insights.

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