According to a study done by The Straits Times, a retired Singaporean spends only 12% less every month compared to his non-retired counterpart. If we require nearly the same amount of money in retirement as we do now, this statistic is alarming when we consider how we will not be earning any active income during our retirement years.
How can you ensure that you are well-prepared for retirement then? Here are 3 things you can start doing today:
1. Transfer your savings from OA to SA to earn higher interest rates of up to 5% p.a.
If you have any additional savings from your Ordinary Account (OA) that you are not using to finance your property, consider transferring them to your Special Account (SA) to earn a higher interest rate of up to 5% p.a. (inclusive of an additional 1% extra interest on the first $60,000 of a member's combined), as compared to up to 3.5% in your OA. This will allow you to grow your retirement savings at a faster rate!
2. Make cash top-ups to your SA up till the current Full Retirement Sum
To build upon your CPF savings, you can make cash top-ups to your SA up till the current Full Retirement Sum to take advantage of the attractive interest rates. By doing so, you can also enjoy dollar-for-dollar tax relief up to $7,000 per year. Being rewarded with tax savings for growing your retirement savings almost sounds too good to be true!
3. Save through the Supplementary Retirement Scheme
To complement the savings in your CPF accounts, you can choose to make use of the Supplementary Retirement Scheme (SRS) to accumulate more for retirement. From 2016, you can contribute any amount in a given year up till the limit of $15,300 for Singaporeans and PRs, and $35,700 for foreigners. These contributions will allow you to enjoy dollar-for-dollar tax deferment for that given year.
The SRS offers attractive tax benefits too. Contributions to SRS are eligible for tax relief, investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement. That can work to a substantial amount of savings from taxes, so you may want to consider the SRS!
To find out more about SRS, you may wish to refer MOF's website.
Information accurate as at 10 October 2016