Anyone who takes part in trade and business is chargeable with tax. It is known that tax rates in Singapore are relatively lower compared to other countries in the world, making it more attractive for individuals and corporations to participate in some form of exchange in business.
Despite the relatively lower tax rates, no one entirely enjoys the act of filing for taxes! This is why you must employ creative ways to save on your next income tax. Consider these suggestions:
1. TAKE PART IN SUPPLEMENTARY RETIREMENT SCHEME
The Supplementary Retirement Scheme (SRS) is part of the government’s financial strategy to help Singaporeans increase their saving as they age. It is a type of retirement savings scheme that is voluntary, where anyone who has an SRS account may contribute any amount they want, which is still subject to a cap. The maximum contribution is capped at S$15,300 in 2016, a slight increase of S$2,550 from last year’s cap.
The more you save for your retirement using the SRS, the less you pay for your income tax. That being said, two apparent benefits are seen when contributing to SRS. The first being, for every dollar contributed to your account, taxable income will be reduced by a dollar. The second being, 50% of your SRS savings will not be taxed. Additionally, you are eligible to spread your withdrawals over a 10-year period.
2. HIT TWO BIRDS WITH ONE STONE
Fulfill your duty as a steward of goodwill and your duty as a responsible citizen by donating in accredited institutions. Several forms of donation are claimable. The following types of donations will qualify you for a double tax deduction (twice the amount of the donation):
a. Cash Donations
b. Shares Donations
c. Computer Donations
d. Artefact Donations
e. Public Art Tax Incentive Scheme
f. Land and Building Donations
For instance, a donation to the Singapore museums that have obtained the Approved Museum Status with the National Heritage Board is tax deductible.
If you are interested in increasing not only your retirement savings but also the retirement savings of your loved ones, you might want to consider the CPF Retirement Sum Topping-Up Scheme.
You will be entitled to a dollar-for-dollar tax relief at a maximum of S$14,000 per annum. This entails a cap of S$7,000 for the individual and another S$7,000 for the family members (T&Cs apply).
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Paying income tax can be painful to your wallet. This is why you must take advantage of the many ways to claim tax relief or rebates.
Some Chinese parents that are steeped in Confucian values often see their children as the main source of retirement funds. This can be a stressful burden to carry, especially if you are a young adult struggling with multiple financial commitments. Therefore, I have devoted a considerable amount of time learning how to grow my parents’ retirement funds and minimise household expenses. So here are 4 ways that your parents can also grow their retirement savings.
Minimise Expenses Via Various Senior Citizen Perks
Image Credit: NTUC FairPrice
For a start, I examined how my parents can reduce their household expenditure. For instance, I recently learnt that NTUC FairPrice offers 3% discount to Pioneer Generation members every Monday. If your parents are not Pioneer Generation members, fret not as those over 60 years old enjoy a 2% discount every Tuesday as well. Similarly, if your parents are over 60 years old, they can also apply for senior citizen concession travel cards. This will entitle them to significant discounts on public transport compared to a usual adult fare card. These are all schemes that my mother can tap on from next year onwards.
For Singaporeans aged over 65, do not overlook the outstanding benefits that come with the Pioneer Generation Package. Amongst the various benefits, it provides subsidised medical and dental services at CHAS participating clinics. These subsidies should help to alleviate healthcare costs. If your parents are not aware of these schemes, you may like to inform and even assist them in the application of these concession cards. A little savings here and there will ultimately add up and go a long way to reduce the household’s daily expenses.
Grow Their Retirement Funds By Leaving Monies in their CPF Accounts
Ask any Singaporean or Permanent Resident and they will tell you that age 55 is a significant milestone in their lives. It is not so much about celebrating yet another year in their lives, but rather, it marks the day where they can dip their hands into the pot of gold that they have painstakingly built up during their working years. Yes, I am referring to the CPF. At age 55, CPF members can withdraw:
up to $5,000, or any balance in their Ordinary and Special Account savings above the Full Retirement Sum[1] (‘FRS’), whichever is higher; and
any Retirement Account savings (excludes any top-up monies, government grants, and interest earned) above the Basic Retirement Sum (‘BRS’) if accompanied by a sufficient property charge or For more information, please refer to CPF’s website.
The temptation is indeed great, but do pause for a second and have your parents assess whether they truly need the money at that juncture.
If your parents are over age 55, choosing to leave their monies in CPF ensures that:
They enjoy an additional 1% interest on the first $30,000 in their combined CPF balances. This is on top of the prevailing Retirement Account interest rate of 4% and the additional 1% interest on the first $60,000 of combined CPF balances applicable to all CPF members. This easily beats any existing interest rate offered by commercial banks. Moreover, the principal and interest are guaranteed by the government, a rock solid triple AAA rated institution.
Even if they do not withdraw any amount at 55 years old, they can still do so anytime later. Therefore, there is no hurry to decide on the withdrawal of excess funds.
Furthermore, your parents also have the option to start their CPF LIFE payouts later, up to age 70[2]. For each year deferred, their CPF LIFE monthly payouts may increase up to 7%,guaranteeing them a larger monthly payout thereafter. Therefore, if your parents are gainfully employed at that juncture, it may be a superior proposition to leave their monies with the CPF.
A good example would be my father- in-law. He turned 55 recently but chose not to withdraw the excess sum after setting aside the FRS. He realised that he would earn an interest rate that is higher than if he were to leave the excess sum under the fixed deposit schemes offered by commercial banks. This is a very prudent decision that will add to his retirement funds.
Grow Their Retirement Funds With Silver Housing Bonus
Some retiring parents face the problem of being cash-poor but asset-rich. They have insufficient retirement funds but may own a property that has appreciated substantially in capital value. The government has introduced the Silver Housing Bonus to incentivise this group of people to unlock the value of their property and to ensure members have a lifelong income. It was introduced to help lower-income elderly households supplement their retirement funds when they “right-size” their flats. Eligible households can receive up to $20,000 cash bonus when the net sales proceeds are used to top up the CPF Retirement Account.
This policy is an attractive option for parents whose children have all left the nest and gone on to set up their respective homes. The need for a big house no longer exists. Therefore, it may be a practical option to downgrade to a smaller house in order to receive the $20,000 cash bonus from Silver Housing Bonus, as well as save on utilities, maintenance and conservancy fees at the same time.
For those who are not keen to “right-size” their flats out of sentimental value, there is another way to unlock the value of their property. By participating in the Lease Buyback Scheme, your parents can receive a stream of income to add to their retirement funds while continuing to stay in the property.
Claim Tax Relief Via The Retirement Sum Topping-Up Scheme (‘RSTU’)
For young adults who have been giving their parents a monthly cash stipend, do consider utilising the CPF Retirement Sum Topping-Up Scheme (‘RSTU’) instead. That is because you may be eligible to receive tax relief and reduce your income tax expense. Do note that the amount of tax relief that you enjoy is the amount of cash that you have contributed to your parents’ Special Accounts or Retirement Accounts (for parents above 55 year old), capped at S$7,000 per annum. This tax relief is applicable only if your recipient’s Retirement Account has not exceeded the current FRS. Cash top-ups beyond the current Full Retirement Sum will not be eligible for tax relief.
Therefore, by depositing cash into your parents’ CPF accounts via the RSTU, you fulfill your duty as a filial child and also receive tax relief! That is killing 2 birds with one stone.
In all honesty, I confess that this is a difficult suggestion to broach. Most parents of that generation still prefer to see cold hard cash as part of their retirement funds. To bridge this gap, you may try to argue that:
If they have no urgent need for the monthly stipend that you are giving, contributing directly into their CPF accounts earns higher interest rates than what commercial banks give.
They can still withdraw up to S$5,000 from their CPF accounts from age 55.
They will be getting higher lifelong monthly income once they start their CPF LIFE payouts.
While the aforementioned all appear to be very objective advantages, my parents remain unconvinced till this day. That is because emotions often play a stronger role in their perspectives of money. For instance, my father sleeps more soundly if his pillow, rather than his CPF, is padded with his retirement funds. But I will continue to nag and hopefully my parents will switch sides one day. Talk about role reversal!
Conclusion
Despite the various ways to grow the retirement funds and minimise household expenses, you may have come to notice that my family and my wife’s family are at different ends of the spectrum. My father-in-law uses his financial literacy to take advantage of the various schemes available in CPF to grow the household’s retirement funds. On the other hand, I am doing my utmost to help my parents play “catch-up” in terms of retirement readiness. But as they say, better late than never.
Recognizing these wrongful money decisions is a vital step to improving your financial health:
#1: NOT SAVING FOR EMERGENCIES
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Skipping an emergency fund can be one of your deadliest money moves. You see, our lives are full of pleasant and unpleasant surprises. Can you fork out a sufficient amount of money to cushion the urgent costs due to unemployment or loss?
Building a fund for these types of events shall be one of your financial priorities to avoid getting into debt or even into bankruptcy.
Solution: Having an emergency fund allows you to build a breathing space to deal with life’s highs and lows. It is recommended to keep about 6 months’ worth of salary inside your emergency fund. Start gradually by aiming for S$400 in the first month. Increase this amount as months pass by.
#2: EATING OUT CONSTANTLY
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It is no secret that Singaporeans love to munch! We are blessed with a myriad of cuisines that one cannot resist the temptation of eating out. As with everything that is good, too much can be a sin too. You may feel that eating out during lunch or dinner daily does not make a difference. But, all your costs add up.
Solution: The cost of one restaurant meal may be equivalent to three home-cooked meals. Consider packing lunch from home as it is almost always cheaper.
#3: PURCHASING UNNECESSARY THINGS
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Many shoppers in Singapore experience mindless sprees when the Great Singapore Sale is on. People purchase unnecessary items just because they are on sale! However, you must not bury yourself in a pile of debt due to the irrational thought that you cannot live without a discounted Prada bag.
Solution: Examine if you are willing to purchase the item in its full price. If not, you probably do not need it after all. Saving up for a new designer bag is better than having to loan money for it. Seek a balance between your debts and your savings.
#4: NOT SAVING FOR RETIREMENT
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The “HSBC’s Future Of Retirement: Generations And Journeys” report found that the average Singaporean begins saving for retirement at age 32 and continues it for another 29 years. Despite having the advantage of saving for a longer period of time than their ancestors, 41% of the participants wished that they had started to save earlier. The perceived insufficient fund may be influenced by the higher cost of living in the recent years.
Solution: You must save a fraction of your salary for retirement while you are employed. There will come a time when you will not be earning money, but you still need to support yourself. Read about building an efficient retirement plan. Seek the help of a financial adviser if necessary.
A prosperous retirement is more than just attaining financial independence. It involves finding happiness and meaning in this fresh chapter of life as well as stretching your financial resources to aid your journey.
Here are the must-read publications if you are looking for ways to make the most of your remaining years:
1. “HOW TO MAKE YOUR MONEY LAST: THE INDISPENSABLE RETIREMENT GUIDE” BY JANE QUINN
Are you at the library right now? Check out the self-help books and other resources about retirement. You will notice that most of these books focus mainly on how to invest your money to create a potent retirement fund. The author’s experience supported this. Quinn once said: “I found books and websites on how to invest but practically nothing on how to prudently parcel your money out. If you take too little from savings, you’re depriving yourself of some of the comforts that you worked for. If you take too much, you’ll go broke.”
You see, spending your money wisely is just as important as building a nest. Find a balance between these elements by reading this book. Written in plain terms, this book explains how you can stretch your money once you are in retirement.
2. “THE NEW RULES OF RETIREMENT: STRATEGIES FOR A SECURE FUTURE” BY ROBERT CARLSON
For people who are far from the retiring age or who are in the earlier stages of retirement, this gem is perfect for you. It is dubbed to be a “global book” that seeks to help its readers to wrap their minds around the whole subject. It takes a realistic look at the diverse life patterns that are emerging in the retiring Baby Boomers in the recent years.
It includes chapters that educate you about managing your fund, avoiding scams, planning for long-term care, and more. These chapters are detailed and easy to read.
3. “HOW TO RETIRE HAPPY, WILD, AND FREE” BY ERNIE ZELINSKI
What makes this book shine above the rest is its Canadian humor and its focus on the non-monetary aspects of retirement. It encourages its readers to improve their physical, spiritual, and emotional well-being. It puts heavy emphasis on how to live during retirement. This is why the contents of the book are not only practical but also relevant.
4. “THE RETIRING MIND: HOW TO MAKE THE PSYCHOLOGICAL TRANSITION TO RETIREMENT” BY ROBERT DELAMONTAGNE
A Psychological transition to retirement entails dealing with the emotional stress that comes with this significant milestone. A substantial part of the book is dedicated to finding the reader’s inner being to create a fulfilling life and to enhance personal relationships. Dr. Delamontagne helps us to understand our personality types as it influences how we grow toward the next stage. These nuggets of knowledge are backed by his personal experiences.
5. “WHAT COLOR IS YOUR PARACHUTE? (FOR RETIREMENT: 2ND EDITION)” BY JOHN NELSON & RICHARD BOLLES
Learn about the wide array of variables that are involved in retirement as this book provides you with useful guidelines on how to be healthy, happy, and successful. There are worksheets and exercises inside for hands-on or practical learning.
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Ultimately, the authors view retirement as a crucial stage in life and not just an event that occurs when you stop working.
It is no secret that Singaporean and expat workers have to face a higher cost of living compared to other cities in the world. In order to cultivate a sufficient retirement fund, these employees have to save nine years longer than the preceding generations. This information is according to the recent HSBC report that included 1,008 Singaporeans who are either working or retired.
Findings in “HSBC’s Future Of Retirement: Generations And Journeys” report showed that the average Singaporean begins saving for retirement at age 32 and continues it for another 29 years. Simple arithmetic will tell you that the previous generations of Singaporeans used to save at an average of 20 years.
Despite having the advantage of saving for a longer period of time, 41% of the participants wished that they had started to save earlier. This tone was supported by the 38% of the participants who stopped saving money due to several difficulties.
Mr Matthew Colebrook, the head of retail banking and wealth management in HSBC Bank Singapore, highlighted that: “in many instances, life events are also getting in the way of setting aside money earlier or in a consistent manner.” This is one of the significant roadblocks that keep Singapore workers from maximizing their retirement fund.
Another roadblock that is worth mentioning is the “tunnel vision” that Singaporeans apply when investing. Often they exclude other forms of assets and focus on cash savings and properties. In fact, the report found that 21% of Singaporeans anticipate that selling or downsizing a property can help them fund their retirement.
Mr. Colebrook made another potent statement concerning this tunnel vision. According to him, “all asset classes’ performance will rise and fall as the current softening of the Singapore property market and low deposit rate environment show us. This speaks volumes for why it is important to seek diversification in a savings plan.”
To gain information about the diversification of a retirement plan as well as other strategies to grow your wealth, you must educate yourself or even seek the help of a financial professional. A financial professional can help tailorize a strategy that suits your personality and lifestyle the best.
