Monday, November 28, 2016

SRS and The Bedokian Portfolio - Part 2

Previously, I had talked about utilising your SRS funds and apply it to The Bedokian Portfolio, including using a core-satellite approach, lump them together as one big portfolio or keep them separated. For Part 2, I will touch on the withdrawal of the SRS account and its tax implications.

In a typical Bedokian Portfolio, where it is formed using your disposable income (which I will call it the “usually-funded Bedokian Portfolio”), the big advantage would be full flexibility. You can dictate when to start retiring and/or enjoy the passive income that comes from the dividend/coupon/interest payments.

For the SRS, however, you cannot do that. Premature withdrawal of funds (i.e. before the current statutory retirement age at the point of your first contribution to the SRS or without a valid reason as stipulated) from your SRS account will incur the full tax treatment and an additional 5% penalty.1 Ouch, you might say.

Overview of SRS Withdrawal and Tax Implication

Upon reaching your statutory retirement age, you can start withdrawing from your SRS funds. 50% of the withdrawals are subjected to tax in a given calendar year, e.g. if you have withdrawn a total of S$50,000 from your SRS account in a calendar year, S$25,000 will be subjected to tax. There is a 10-year timeframe to withdraw the funds, and if there is still balance in your SRS account after that timeframe, 50% of it will be subjected to tax.2

To add, if you are a foreigner or a Singapore Permanent Resident, there is an additional withholding tax upon withdrawal.3

Due to the tax implications, there is a difference in approaching the drawdown of your SRS-funded Bedokian Portfolio from the usually-funded one. The main issue would be calculating the tax impact on your withdrawals. For Singaporeans, the tax rate ranges from 0% to 22% for the Year of Assessment 2017 (the next period of tax returns filing).4 A good strategy would be to withdraw S$40,000 yearly, meaning the taxable amount is S$20,000 (50%). At the moment the tax rate for the first S$20,000 is 0%, i.e. no tax.5 Therefore, if you have no other taxable income besides this withdrawal, you are saving on the taxes.

Do note, however, that the tax laws and SRS regulations may change in the future. It is recommended to consult your financial advisor or tax accountant on these issues.

In Part 3 (and the final part), I will provide some tips on administering your usually-funded and SRS-funded Bedokian Portfolio. So stay tuned.

1 – Inland Revenue Authority of Singapore. Tax on SRS Withdrawal. (accessed 27 Nov 2016)

2 – Ministry of Finance. Supplementary Retirement Scheme, p13. (accessed 27 Nov 2016)

4 – Inland Revenue Authority of Singapore. Income Tax Rates. (accessed 27 Nov 2016)

5 – Post Office Savings Bank. Optimise Your Supplementary Retirement Scheme.

Further Reading

Ministry of Finance. Supplementary Retirement Scheme. As of 30 Dec 2015. (accessed 27 Nov 2016)

Tuesday, November 22, 2016

SRS and The Bedokian Portfolio - Part 1

The Supplementary Retirement Scheme, or SRS, is “part of the Singapore government’s multi-pronged strategy to address the financial needs of a greying population by helping Singaporeans to save more for their old age”.1 It is similar to the Central Provident Fund (CPF) in that it is a retirement savings scheme, but the SRS is voluntary and there is some flexibility to it as compared to the CPF.

You could open a SRS account with any of the three local banks; DBS, OCBC and UOB, but you can only have one SRS account at any one time.

The SRS has some tax benefits, one of which is that contributions are eligible for tax reliefs. To qualify for the tax relief for your next year’s tax returns (in this case, for 2017), you would need to contribute funds to the SRS account by 31 December 2016.2 Therefore in a way this post is apt as a reminder at this time of the year as you have slightly more than one month in deciding whether to partake in this scheme.

The Bedokian Portfolio, including rules on asset class diversification and rebalancing, can be applied using your SRS funds, similar to a Bedokian Portfolio built with your disposable income.

If you have an existing Bedokian Portfolio funded from your disposable income and you wish to apply the portfolio using the SRS, you have a choice of either combining the two into one Bedokian Portfolio, or maintain two separate Bedokian Portfolios, though the latter would be more tedious administratively. Another way would be to adopt the core-satellite strategy3 whereby the SRS can be used on core financial instruments and the satellite ones are maintained by your own funds.

1- Ministry of Finance, Singapore. Supplementary Retirement Scheme (SRS). 

3 - The Bedokian Portfolio, p122-123

Sunday, November 6, 2016

Great Expectations

In recent times, there has not been a political event that has a profound effect on the financial markets than the upcoming United States presidential elections. According to the polls, the two major candidates are almost neck and neck, and there is extensive media coverage on the social, political and economical consequences should either one becomes President.

On the investment front, there are countless articles and opinions in the news and on the internet about what to expect when a particular candidate wins, and a victory for different candidates spelt a different outcome for the financial markets.

So with the polls showing a close fight, and the markets could go either way depending on the election results, what do you as an investor expect?

In fact, no one knows what to expect.

Back in June 2016, the results of the United Kingdom’s EU referendum (or the Brexit referendum) shocked the markets, even though the majority of the polls during the run-up to the event favoured a “remain” outcome, albeit by a narrow lead.1 One of the main reasons was that the markets had expected, or “priced in”, a “remain” result2, so when it went the other way, a massive sellout ensued.

Perhaps the markets and the participants are remembering the Brexit experience, hence the current mood of uncertainty?

So how then for The Bedokian Portfolio investor?

If you are a passive investor, just stay the course and ride the waves.

If you are an active one, get ready your watchlist.3

May the best candidate win.

1 – Financial Times. Brexit Poll Tracker. (accessed 5 Nov 2016)

2 – Chu, Ben. EU Referendum: Financial markets position themselves for Remain victory. Independent. 23 June 2016. (accessed 5 Nov 2016)

3 – The Bedokian Portfolio, p 94-95