The good thing about SRS investment options are that there are plenty of them so you have a very wide range of choices.This not so good thing about SRS investment options are that there are plenty of them and it can be quite a challenge finding the right one for you.
Here is a 3 stage thought process that I use to help clients think about the types of investments they should be considering depending on the stages they are at.
a. Start – From initial SRS contribution to late 40s or early 50s
Everyone has different starting points in entering the SRS scheme but generally, I believe most people will start contributing into SRS at around their 30s to 40s when the amount of income tax they are paying starts to get their attention.The will mean that counting back from the earliest penalty free withdrawal age of 62 under the SRS scheme, there is a good time frame of 10 to 20 years for most people to invest.
As such, investments that have the potential to provide the most return over a 10 or 20 years period can be considered, moderated of course by your individual risk appetite.Stocks and shares (the good quality type) for the DIYs or a well-managed unit trust portfolio for the DFYs can be good options to consider during this stage.
b. Rebalance – About 10 years before age 62
This is the time when more than usual care should be given to your SRS investments.At the earlier stage, you will still have time to make corrections if things did not work out the way you expect – bad market timing, underperformance of investment, wrong selection of investment…etc.At this stage, you are left with little or no time.
This important step of rebalancing is often missed out when SRS is not thought about as part of a retirement strategy with a deadline to start withdrawal.
c. Spend – From 62 onwards and probably about 10 years for most.
This, ultimately, is what SRS contribution is all about.It should form part of your spending plan for retirement.Due to the tax rules around SRS withdrawal, there is still planning to be done over here to ensure that the returns are maximized.The spending (i.e. withdrawal) should be spaced out, over 10 years from the first withdrawal in order to fully benefit from the 50% tax concession.
Depending on how you have set up your retirement income, the timing and the amount of withdrawal should be considered as it should complement your other income sources such as CPF-Life and other investment income.
This resource list consists of a table that list down 5 options that can be invested using SRS funds with additional comments on the unique features of these plans.
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