A financial BLOG written by a DIY investor covering Singapore blue chips, dividend stocks, financial education, corporate news, money saving tips, book reviews and my journey to financial freedom. Currently managing a personal portfolio of more than SGD $1,000,000, I aspire to have an average cash flow of minimum $10,000 per month either through realised capital gains or dividends.
Friday, May 24, 2013
Good savings from SRS and CPF voluntary contribution
It is the time of the year to pay income tax. The company owners are happy to receive dividends instead of income as they are tax a maximum of 18% at corporate level. The income I receive from REITs and listed company has already been taxed at source. Hence, I do not benefit from the corporate tax structure. For ordinary middle income Singaporeans like you and me, we can contribute to SRS and CPF (special account) to save a little on tax.
I have completed my last module last year for my postgraduate course, which means I do not enjoy tax relief on course fees this year onwards.
It is a struggle to decide if I should be saving into my SRS and CPF SA account. It is upfront savings VS long term locked-in decision. However, I decided to contribute the maximum as I forsee myself living beyond 62 and the funds will be invested in unit trust and enjoy 4% risk free rate from CPF respectively.
I did a rough calculation and by voluntary contribution of $19,750 to both my retirement accounts, I saved 4.9% upfront or $968 tax after rebates. I personally think it is an excellent way to save retirement money. Given that many people stash aside money to endowment plans (with nominal coverage), by contributing funds to SRS and CPF, I will be earning at least and average of 4.5% P.A, which is likely to be better than most endowment funds in the market.
It is extremely important to invest your SRS funds instead of leaving it idle. For me, I am treating my SRS and CPF funds as "bonds" allocation, cash funds as equities allocation. Hence, I am mainly investing retirement funds in bonds (sounds silly, but target returns of 4.5% is to outperform endowment plans benchmark), which will double by the time I withdraw them. Don't forget, I start off with 4.9% upfront savings gains!