If you are reading this, you probably have some money in your SRS account, or you have already invested some.
Whatever it is, I am here to explain why it is a good idea to consider annuity for your SRS.
As you know, SRS timeline is divided into 2 parts:
Just keep this timeline in mind and let’s begin!
(1) You have to wait till 62 before you withdraw
It is very likely that you won’t withdraw this money out until at least 62.
So, this is the main reason why you should get an annuity!
If you use your SRS for annuity, you can set the maturity to be 65, 70, 75, 80, 85 or 90.
So, let’s say you set the maturity to be 65. This is how you can withdraw your money from SRS without paying tax:
(assuming if you don’t have income then)
You can see that at 62, you are able to withdraw $31,301 which is more than your principal $24,250.
So don’t leave your money in the SRS! If you do that, you will still see $24,250 at 62!
If you want to achieve more returns, wait for it to mature:
Question: Why do I withdraw $40,000 at 65 and the balance at 66?
Answer: Otherwise I will be taxed $141.65! (See illustration below)
If you still don’t know why, refer to the first diagram above.
And if you still don’t know, call or whatsapp me (Junhao) @ 9295 2844.
And of course, you can set the annuity payout to be from 65 to 85, and you will not pay any tax.
In this case, you can expect to get back about 5x of your capital.
There are many different scenarios but you can choose one that you prefer.
(2) Annuity is Safe & Capital Guaranteed
Annuity is very very safe and the capital is guaranteed.
Based on Figure 5 just above, the guaranteed component is 2.3 times of the capital.
(3) Annuity beats Inflation
Annuity is an excellent way to ensure that your capital beats inflation.
The returns are above 3% to about 4.6% p.a.
Based on Figure 5 above, the returns are 4.6% p.a.
(4) Annuity is able to provide disability income
Annuity can also provide you with additional disability income in the event of total and permanent disability due to accident.
It is common to see disabled people everyday.
If they have bought an annuity, they will be able to receive additional income (if it’s due to accident).
(5) Annuity is able to give you stable monthly income and ensure your money last for many years
I would like to illustrate this point with a concept.
It is called:
Pocket Money Concept
If you are a parent, you will understand this.
When your child was in primary school, you gave him/her pocket money. Say $3 a day.
Assume there are 250 school days. In 6 years of primary school, you will give:
$3 x 250 days x 6 yrs = $4,500
$5 x 250 days x 4 yrs = $5,000
$8 x 250 days x 2 yrs = $4,000
$10 x 250 days x 4 yrs = $10,000
So, what are you actually giving them?
I think you get the point.
For over 16 to 18 years, you are giving them ANNUITY.
Will you give them a lump sum of $10,000 at the start of University Year 1?
No, of course! You know why.
So, it is wise to give yourself annuity too. Bu it will be hard for you to do that by yourself.
It is a good idea to let annuity do the job for you.
(6) Annuity can accumulate your $money if you don't need it
Let’s revisit Figure 5.
This illustration shows withdrawal every month.
If you don’t need the income, you can actually accumulate with interest.
And if you need it, you can withdraw anytime!
Note that we have to minimise paying taxes, so we have to plan carefully on when to withdraw from SRS.
There are lots of rules in SRS. When the time comes, I will help you to optimise.
(7) SRS is meant for retirement. Retirement funds should not be exposed to volatility.
I always believe that when it comes to retirement, there should not be any heart attack.
I don’t know about you but I would want to sleep soundly at night.
There’s nothing wrong with investment. But during your retirement, the monthly income that you need to pay for basic expenses and shield premiums must be stable.
Anything in excess, you can go for investments. That’s what I feel.
Imagine you are 65 or above in 2007.
And you put all or majority of your retirement funds in Singapore stocks.
All of a sudden, STI dropped by 59%.
You need monthly income. What are you going to do?
Will you sell your stocks?
STI has not recovered since then. Now it’s still below the peak.
Will you want a more stable income during your retirement?
Annuity can do that for you – no heart attack and sleepless nights.
Let’s take a look at DJIA.
DJIA dropped by 50%.
Will you be able to sleep at night if your retirement funds are stuck there?
And it took 6 years to recover.
For retirement funds, go for something safer.
We all have different preferences but we should always consider annuity as a preferred choice for SRS.
Ultimately, it will be used for retirement.
It is safe, guaranteed, beats inflation, gives you a peace of mind and ensures that you will definitely have income every month.
And the best thing is:
It is hassle free! You don’t need to monitor at all!
Have any questions?
Let me know what you think.
Do you agree that SRS should be used for annuity?
You can leave a comment below or email me or give me a call @ 9295 2844. I promise I will reply you.
And if you think that this article is useful, share it with the people around you!