If I am working and earning during my retirement, should I delay starting SRS withdrawals?

SRS Withdrawal Strategy While Working Past Retirement Age

Delaying your Supplementary Retirement Scheme (SRS) withdrawals while you are still working and earning income past the statutory retirement age (currently 63 for those opening SRS now) is generally advisable for Singaporeans seeking to maximize tax efficiency.

Taxation of SRS Withdrawals

The key benefit of SRS is the tax deferral. Withdrawals are taxed based on the retirement age when the account was opened. For a Singaporean opening SRS now, the withdrawal age is 63. After this age, only 50% of the withdrawn amount is subject to income tax.

If you are still working and earning, your marginal income tax rate might be higher than the effective tax rate after retirement. For example, if your marginal tax rate is 15%, withdrawing $15,300 (the annual contribution limit) would incur $2,300 in tax (15% of $15,300). If you wait until retirement, only 50% of that amount ($7,650) is taxable, resulting in a lower tax liability (e.g., $1,147.50 if the rate remains 15%).

Achieving Zero Effective Tax

To achieve an effective zero tax rate on SRS withdrawals after retirement, you should aim to withdraw no more than $40,000 per year (assuming you are in the 15% tax bracket or lower). This is because the first $20,000 of taxable income is tax-free, and the next $20,000 is taxed at 50% (meaning $10,000 is taxable, which falls within the tax-free threshold for lower brackets, or results in minimal tax). If you are still working and your income pushes you into higher tax brackets, delaying the withdrawal further minimizes the tax paid on that deferred income.

Withdrawal Window

Remember that SRS allows a 10-year withdrawal window once you reach the statutory retirement age. This flexibility allows you to strategically time your withdrawals to align with years when your overall income (including employment income) is lower, thus reducing your overall tax burden. Withdrawing early before retirement age incurs a 100% tax charge plus a 5% penalty on the withdrawn amount, which should be avoided.

Investment Growth

Since SRS only earns a nominal 0.05% interest, the funds must be invested. Delaying withdrawal allows your invested SRS funds to continue compounding tax-deferred for a longer period.