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withdrawing from your SRS funds. 50% of the withdrawals are subjected to tax in a given calendar year, e.g. if you have withdrawn a total of S$50,000 from your SRS account in a calendar year, S$25,000 will be subjected to tax.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)


  1. Hello.

    A comment if I may

    Without SRS, capital gains, interest, dividends are tax exempt. The srs as a tax deferral and tax deduction device may not be as attractive if you consider that ordinarily cap gains interest and dividends are tax exempt; whereas under the srs the cumulative amounts of capital gains dividend and interest are subject to the 50% taxable amounts.

    Secondly over the long run our tax rates are creeping up so what may below the tax free threshold now may change over time

    Thirdly, ithe srs places a huge restriction on the liquidity of your funds

    Just sharing my counter argument


    1. Hi Trillion,

      Thanks for the points raised and those are all very good ones.