How to invest your SRS and earn dividends

Have you paid your income taxes recently and felt the hurt of how that huge chunk of money was gone from your bank account just like that? Well, the obvious good news is that you are earning more income and the not so good news is you contribute more to taxes since you are drawing more now. What if you can take all these matters into your own hands and save money from taxes while investing them to earn dividends at the same time? Time to get onboard with the Supplementary Retirement Scheme (SRS) if you haven't. And this is all legal by the way.

As we move into the third quarter, it is wise for you to start doing some tax planning while rethinking your investments. Before we go more into that, you may have heard the term SRS many times but forgot what it meant. SRS is a voluntary scheme started by the Singapore government in 2001 to encourage Singaporeans, Permanent Residents & tax-paying Foreigners to save more for their old age by contributing a varying amount (subject to a cap) at their own discretion where contributions can be used for investments.

4 key tips to consider before you start your SRS journey¹

1. As with any investment strategy or product, it goes back to your priorities, the life stages you are in, and your retirement goals:

• SRS may be for you if you already have healthy CPF contributions or have already bought a home and looking to invest some of your disposable income in a tax–effective way.
• SRS may not be for you if you are saving up for big ticket purchases such as buying your first home as SRS monies cannot be used for buying a house or for medical coverage.

2. As SRS monies are meant to be held till the statutory retirement age of 62 years old, note that 100% of the sum withdrawn will be taxed and a 5% penalty will be imposed for early withdrawals before the statutory retirement age.

3. Consider a longer time horizon for your SRS investments since the earliest you can make a SRS withdrawal is at age 62, which also means there is sufficient time to ride out market cycles and volatility. Therefore, the earlier you start, the longer your time horizon.

4. Spread your SRS withdrawals over a period of 10 years to save on taxes imposed at withdrawals as only 50% of withdrawals at retirement age are taxable.

Generate your own passive income with dividends

There are many ways to invest your SRS, be it through fixed deposits, insurance, shares, REITs or ETFs. But one great way to get started can be through unit trusts. Unit trust is a basket of stocks managed by a professional fund manager which provides diversification as compared to a single stock. At dollarDEX, our intuitive fund finder allows you to search for dividend paying funds and sort them based on your preferred criteria.

These dividend paying funds also vary in dividend distribution periods. Depending on the fund, it can be paying out dividends monthly, quarterly, semi-annually or annually. Additionally, the range of dividend paying funds on dollarDEX spans across different asset classes and sectors which allows you to choose based on your preference. You can decide if you like to reinvest your dividends to continue growing your nest egg or opt for a payout. Do take note that dividends paid out will be credited into your SRS Account but the good news is dividends from your SRS investments will not be taxed.

For those who wish to get started but don't know when is the right time, it advisable to avoid timing the market and start a Regular Savings Plan (RSP) with as little as $100 a month with your SRS monies.

dollarDEX platform also provides flexibility for various investment modes, be it investing a lump sum or investing on a regular basis with our RSP or Value Averaging Plan (VAP) options. You also have the flexibility to edit the amount and fund you wish to invest into for your regular investments anytime whenever you like.

When to top up your SRS funds?

Take the time now to start planning how much you want to top up into your SRS account as long as you do it on or before end of 31 December each year². You can do it anytime and as often as you wish before the deadline.

How to get started?

Simply head to any of the three local banks below and open an SRS account with them:

1. Development Bank of Singapore (DBS)
2. Overseas-Chinese Banking Corporation (OCBC)
3. United Overseas Bank (UOB)

There are many platforms including banks that can allow you to invest your SRS monies but they typically charge a fee which will eat into your investment returns. On dollarDEX, you can invest your SRS monies with no fees, this means that your money is fully invested into the funds that you pick. While you wait for your SRS account to be opened, why not create a dollarDEX account for free to prepare you for your tax–saving investment journey!

Alternatively, you may wish to consider Aviva's MySecureSaver that gives you a guaranteed return of 2.25% per annum³ over 3 years. This plan is only available for a limited time and on a first–come, first–served basis. Simply leave your contact details here to learn more.

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Disclaimer

All information here is for GENERAL INFORMATION only and does not take into account the specific investment objectives, financial situation or needs of any specific person or groups of persons. Prospective investors are advised to read a fund prospectus carefully before applying for any shares/units in unit trusts. The value of the units and the income from them may fall as well as rise. Unit trusts are subject to investment risks, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currencies should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance. dollarDEX is affiliated with Aviva but dollarDEX does not receive any preferential rates for Aviva products as a result of this relationship. Unit trusts are not bank deposits nor are they guaranteed or insured by dollarDEX. Some unit trusts may not be offered to citizens of certain countries such as United States. Information obtained from third party sources have not been verified and we do not represent or warrant its accuracy, correctness or completeness. We bear no responsibility or liability for any error, omission or inaccuracy or for any loss or damage suffered by you or a third party (including indirect, consequential or incidental damages) arising in any way from relying on this information.

This information does not constitute an offer or solicitation of an offer to buy or sell any shares/units.
This article has not been reviewed by the Monetary Authority of Singapore.

Information is correct as of 12/07/2019.