Supplementary Retirement Scheme - No Need to Liquidate Anymore

Looks like there is no longer a need to liquidate SRS investments during withdrawal. I suppose this means shares and unit trusts can simply be transferred out. The 50% taxable amount will be based on the valuation at the point of transfer.

That means we wouldn't have to cash out and then reinvest, suffering from double payment of transaction fees. It's a good policy change. More cost avoidance for the retirement investor. That can only be a good thing.

See the official MOF website announcement:
http://www.mof.gov.sg/MOF-For/Individuals/Supplementary-Retirement-Scheme-SRS

Related:
SRS - One way to avoid paying more tax
Maximising returns with minimal risks
SRS Booklet - summarised version (from MOF website)

24 Tales in the Journey to Wealth

RETIREMENT

"Financial Independence, Retire Early" (FIRE) - that seems like a wonderful catch phrase to set the flames going. What does it take to achieve this burning desire? I think it boils down to a magic number.
[1. http://lizardorealm.blogspot.sg/2015/05/light-fire-can-i-retire-now.html]

STOCKS

To achieve this outcome, I invest in the market, diversified across market regions, namely Asia Pacific (except Japan), global emerging markets, the US, Europe and Japan. 

Unit Trust.

I use funds from the Supplementary Retirement Scheme (SRS) and CPF OA and SA funds to invest into Unit Trust on the Fundsupermart platform. Since each year I can contribute up to to $12,750 into SRS, that is the capital injection that goes into this portfolio. This unit trust portfolio is further complemented by ETFs. Fees in Unit Trusts are relatively higher compared to ETFs, but the latter tends to be less liquid.

[http://lizardorealm.blogspot.sg/2015/01/the-performance-of-unit-trusts-in-2014.html]

Singapore Stocks.

A value investment approach in dividend paying stocks can be most rewarding. I diversify across the Singapore stock market by buying a dozen stocks (or two!) to spread the risks. The wonderful part of this is that I can happily collect dividends to reinvest while waiting as well. Of late, the dividends can run into an average of $1,000 a month. This will be the means by which I intend to generate the eventual passive income for retirement. The dividends would have been more, except that I typically take up the script offer (i.e. collect more units of stocks in lieu of cash), so as to continue to build up my portfolio, and at a discount from the market value.

[2. http://lizardorealm.blogspot.sg/2015/04/my-singapore-team-of-dividend-stocks.html]

US Stocks.

Likewise, for US stocks. I invest through POEMS which hold the US stocks as a custodian account. US stocks (if you pick carefully!) have a practice of steady dividend growth. So even if you do nothing, the dividends tend to hold stead or growth with each passing year. The only problem is the 30% withholding tax on the dividends. The custodian fee that POEMS charge is quite minimal really, so that I can live with.

[3. http://lizardorealm.blogspot.sg/2015/06/my-us-team-of-dividend-stocks-2015.]

Exchange Traded Funds (ETF).
Since I already hold diversified portfolios of Singapore and US stocks, the rest of the market regions are held via ETF, which complements the Unit Trust portfolio mentioned earlier. I prefer to hold ETFs that pay out dividends - or what I refer to as an Income ETF Portfolio.

[4. http://lizardorealm.blogspot.sg/2015/01/2-portfolios-of-etfs-growth-vs-income.html]

BONDS

The stock portfolios are complemented by bonds and cash. While my plan was to maintain only 10% in bonds and cash (or bond-like instruments), it has typically reached 20%. In addition, I maintain 6 to 9 months worth of expenses in cash instruments.

Preference Shares and Retail Bonds. 

These can be bought off the SGX. The coupon payments, usually half-yearly, provides yet another income stream.

[5. http://lizardorealm.blogspot.sg/2015/01/non-convertible-preference-shares.]

Bondsupermart.
More recently, a wider spread of bonds can also be bought through Fundsupermart. Aside from the few retail bonds, the majority will require hefty $250,000+ investments. Something beyond my reach and need for now, so it's something to keep in view as a future option. As an income stream, perpetual bonds can be quite attractive.

[6. http://lizardorealm.blogspot.sg/2015/05/bondsupermart.html]

Singapore Savings Bond.
This offering from the Singapore Government will be available to retail investor soon. While not a inflation-linked bond, it has some semblance of it. I will most certainly park some of my cash components here. That will serve as an emergency buffer that can be cashed out if needed.
[7. http://lizardorealm.blogspot.sg/2015/04/singapore-savings-bond-as-safe-as-it.html]

Central Provident Fund (CPF).
The compulsory savings into CPF actually is another bond component, offering steady and fairly risk-free growth. The only problem is the lock-in. The lock-in becomes less of a worry for someone like me who is reaching the half-century mark. CPF funds has serveed many useful purposes thus far, especially to fund housing (used), support the kids' education (an option not yet used), or invested into stock or unit trust funds if I prefer to take more risks.
[8. http://lizardorealm.blogspot.sg/2015/02/a-great-retirement-offer-from-cpf.html]

Bank Savings Accounts.
Even the traditional banks can offer interesting saving accounts with higher interest rates. But a bit of acrobatics need to be done. This is the other component of my cash funds.
[9. http://lizardorealm.blogspot.sg/2015/06/how-can-we-stretch-interest-on-our-bank.html]

MAXIMISING SAVINGS, REDUCING EXPENSES

Even as the investment portfolios are being built up, it is also worthwhile to examine options to reduce 'leakages'.

Supplementary Retirement Scheme (SRS).
Taxation is such a killer, especially at higher incomes. One sure way to reduce the tax burden is to contribute to the SRS (and invest the money sitting in SRS!).
[10. http://lizardorealm.blogspot.sg/2015/02/one-way-to-avoid-paying-more-tax-srs.html]

Donations.
And if you have a charitable heart, donation is another way of reducing the tax burden while doing some good deeds.
[11. http://lizardorealm.blogspot.sg/2015/02/another-way-to-avoid-paying-more-tax.html]

Credit Cards.
Some people view credit cards as an evil thing. But used wisely, it can actually help reduce our expenses.
[12. http://lizardorealm.blogspot.sg/2015/06/4-credit-cards-with-great-cashbacks-and.html]

EXOTICS & ALTERNATIVES

There are many exotic options and alternatives to grow that investment pie. But be very careful! Perhaps, it suffices to keep things simple.

Crowdfunding.
A recent trend has been the growth of crowd-funding platforms. These have arrived on our shores, offering the lure of 12% returns or more. In reality, they are even more risky than junk bonds. I am keeping this in view for now.
[13. http://lizardorealm.blogspot.sg/2015/02/moolahsense-embarks-on-new-fundraising.html]

Starting a Business.
This requires more careful considerations. I'm not quite ready for that leap.
[14. http://lizardorealm.blogspot.sg/2015/01/running-cafes-as-business-owner.html]

Inheritance.
One could wait for an inheritance, if there is any to be had! But I wouldn't bet on this.
[15. http://lizardorealm.blogspot.sg/2014/12/20-years-and-200000-mothers-savings.html]

Exciting Bank Offers.
This is an oxymoron. With the exception of the aforementioned special savings accounts, what can they offer that can do better than all the self-help options mentioned earlier given their exorbitant charges?
[16. http://lizardorealm.blogspot.sg/2015/05/a-fantastic-investment-deal-at-bank-or.html]

STAY HEALTHY

Be Healthy.
Most importantly, is to stay healthy. What's the point of an early retirement, if one is in bade health? Or worse, expired early!
[17. http://lizardorealm.blogspot.sg/2014/07/investing-and-dieting-wealth-and-health.html]

Medical Insurance.
But we can never be certain of good health. So medical insurance is a must in my view. Without this, all the savings and investments can be easily wiped out in no time. Sometimes, we really have to spend money to save money.
[18. http://lizardorealm.blogspot.sg/2015/04/thank-goodness-we-had-medical-insurance.html]

Staying Healthy on Cruise.
One can still enjoy life, even while on a food binge on a cruise. It's not that difficulty to stay healthy, really.
[19. http://lizardorealm.blogspot.sg/2015/04/not-too-difficult-to-stay-healthy-on.html]

ANTHOLOGY OF DISASTERS

Con Jobs.
These are just plentiful and are happening everyday. Always worth repeating the mantra, "if it sounds too good to be true, it probably is too good to be true". Greed is our greatest enemy. And the enemy is that person in the mirror.
[20. http://lizardorealm.blogspot.sg/2015/05/rags-to-riches-riches-to-rags.html]
[21. http://lizardorealm.blogspot.sg/2015/02/the-allure-of-gold-treachery-of-glitter.html]

Job Loss.
This can really be painful and disastrous. A family unit that has multiple wage earner helps diversify the risk. But for the single-income family, there really isn't any room. Best to move on and deal with the realities.
[22. http://lizardorealm.blogspot.sg/2015/05/what-do-you-do-if-you-get-laid-off.html]

Extravagance.
A lifestyle of living beyond one's means is a sure road to disaster. Live within your means. What you can't save isn't yours.
[23. http://lizardorealm.blogspot.sg/2015/05/a-millionaire-and-yet-completely-broke.html]

Careless Decisions.
Sometimes, we will make bad decisions and lose money. Hopefully, this doesn't happen too often and too painfully.
[24. http://lizardorealm.blogspot.sg/2015/06/sumiko-tans-money-no-enough.html]

--
"Good health, great wealth!"
Or should it be, "Good wealth, great health!"

One Way to Avoid Paying More Tax - SRS Adjustments from 1 Jan 2016

According to the latest budget announcements, the personal income tax will go up by as much as +2% for the higher income brackets. At the same time, the Supplementary Retirement Scheme (SRS) contribution limit would be raised from $12,750 to $15,300 for Singapore citizens and PR with effect from 1 Jan 2016. For foreigners, the corresponding SRS contribution limit would be raised from $29,750 to $35,700 (they do not have CPF contributions).

Supposing that with the new taxation levels, my tax bracket is at 19.5% (i.e. taxable income above $240,000). By maxing out my SRS contribution at $15,300, this amount would be deducted from my taxable income. As such, I would be making a tax avoidance of 19.5% x $15,300 = $2,983.50. That's enough for another short holiday!

Guess it's also one way to offset the increase of tax. I wonder if anybody is going to tell their bosses this year, "Boss, don't pay me more this year!"

Previously:
An Excursion on SRS, Deferred Taxation
Maximising Returns with Minimal Risks - for the ultra conservative investor
Start of 2015 - Time for Some Tax Avoidance

Start of 2015 - Time for Some Tax Avoidance

Welcome to 2015! It's 1 Jan 2015. Time to be reminded to put that cheque of $12,750 into the Supplementary Retirement Scheme (SRS) account for the tax deductible benefits.

An Excursion on SRS, Deferred Taxation
Maximising Returns with Minimal Risks - for the ultra conservative investor

Each year, I put this sum into my Fundsupermart account under a money market fund. Then each month, I take $1,000 worth to buy into an equity fund to "rebalance" my diversified portfolio across the various market regions.

Maximising returns with minimal risks - for the ultra conservative investor

Most of us probably are guilty of unnecessary 'expenses' that could have been avoided with a little bit more education and interest.  And you don't have to avoid that cup of Starbucks coffee to do so!

Tax Avoidance


Not the illegal kind of course!  But one could easily avoid paying tons of tax by establishing a Supplementary Retirement Scheme (SRS) account and maxing out the annual contribution of $12,750.  Contibutions to your SRS are tax deductible.  If you were at a tax bracket of 17% for instance, this translates into a tax avoidance of $2,167.50!  In addition, that $12,750 should be further invested to achieve higher returns. 

The catch: SRS cannot be withdrawn till after retirement age (62-65 years old), and has to be extracted over a period within 10 years thereafter, taxable at half the amount.  That means that if one had no other sources of income by then, withdrawal of $40,000 annually would be tax free since the first $20,000 of taxable income enjoys 0% tax.  This assumes the taxation system remains unchanged.

Caveat: My take on the subject of SRS is that it may not be meaningful to do so if your tax bracket is still very low.

More Tax Avoidance

If your spouse is earning less than $2,000 a year, you could contribute up to $7,000 to your spouse CPF-SA (Speical Account) which is then tax deductible for you!  That's a further $1,190 of tax avoidance at the 17% tax bracket - i.e. an immediate 17% yield!  Consider in addition that the $7,000 in your spouse's CPF-SA would be benefiting from 4% returns as well.  Of course, there is no guarantee the interest rate for CPF-SA would continue to be 4%, since officially it is now benchmarked against SGS 10-year bond + 1%.

The catch: CPF-SA is of course not withdrawable till after 55 years of age, subject to any balance left after the minimum required transfer to CPF-RA (Retirement Account).  Check out the CPF website for more information.

Risk-free Investments

Aside from low risk but rather hopeless options of putting our money into savings account (earning a pittance of a return) or fixed deposits (equally miserable returns), other options would be Singapore Government Securities (SGS) Bonds and Money Market Funds. 

SGS Bonds can be bought off secondary markets such as from Fundsupermart. The yield is in the region of 2-3% for 10-20 year maturity. Not bad, compared to 0.5% in savings account. These days, SGS Bonds are publicly traded on SGX.

Money Market Funds (MMF) on the other hand are unit trusts that invest in short-term (<1 year) maturity and probably yield about 1% right now, although it could well be 2-3% over the longer term.  MMF are however very fluid.  While it carries slightly more risk than savings account, the risks are relatively low given the short term maturities and AAA-rated holdings.  I view MMF as 'equivalent' to a savings account, but with a latency of 1-2 weeks when the money needs to be cashed out.  Such funds would include LionGlobal Money Market Fund, Philip Money Market Fund, and Pru Cash Fund.

There are various Singapore Corporate Bonds, including from government or statutory boards, which may well offer better yields than SGS Bonds.  Unfortunately, these are not easily accessible for the typical retail investor for now.  But recent news suggest that SGX is looking into opening up this market in the not so distant future.

There is a good video presentation from Mah Ching Cheng to explain this subject (a SIAS event): Investing in Bonds.

In Summary

For the ultra conservative investor therefore, the above would reap immediate benefits in maximising the little cash that we could put to better use, avoiding unnecessary wastage, and simple solutions to getting better returns, rather than leaving our money in the bank idling away.

We start off by working hard for our money.  It's time to make our money work harder for us.

Retirement:
Supplementary Retirement Scheme [IRAS]
Investing in Bonds [SIAS MyMoney investor education]
SRS & CPF Cash Top Up Schemes [Nexia Pulse]

Journey through the ages - is 20% good?

It has been a fascinating, and at times exciting, journey. Initially, I had only invested in insurance-based schemes. Be it whole-life endowment plans or investment-linked policies (ILP). Work, work, work was otherwise all I focused on. Making ends meet from the salary I earned and saving money into the bank were pretty much the game plan otherwise. Marriage, housing, post-graduate studies and kids pretty much took up everything else I had.

Had it not been for the early years buying into the various ILPs, I wouldn't have much of an investment to speak of. Interestingly, I had the fortune of having taken up ILPs in the era post Asian Financial Crisis and it had generated quite a tidy sum. It came in handy when I needed the money to complement my CPF to buy my first home.

Then I discovered Fundsupermart. A small sum in its cash fund gave me confidence to take the next step - i.e. to invest into various unit trusts funds. As I read more and gained a better understanding of the concept of diversification, stocks and bonds, the unit trust funds I invested into became more systematically managed.
Then I discovered the tax benefits of the Supplementary Retirement Scheme (SRS). Voila! Max'ed out my SRS, minimise the tax I have to pay, and invest the SRS into unit trust funds at Fundsupermart. It's all too easy!

At the depth of the Global Financial meltdown, I saw my unit trust funds sink miserably. And I mean miserably. But I stayed faithful to the diversification plan with the confidence that the market will generally recover in the long run.  It has not disappointed.

In 2009, I assessed that there were many opportunities to pick up stocks. I must say I had a confirmation bias when I saw a video interview with Warren Buffet where he suggested that he was on the look out for things to buy. So started my stock picking journey.

After 5 years investing into the stock market, I did an analysis recently to see how I've faired. Turned out, not bad. Not bad at all. Using Excel's XIRR function, the internal rate of return showed 20.6% over the 5 year period investing in stocks. The stock portfolio, both from valuation uptick and from cash additions to the investment fund, has grown in leaps and bounds, from zero to hundreds of thousands in that 5 years.

Significantly, as I analysed the individual stock's performance, it is also clear that the dividends have been significant. Soon, the dividends alone would generate $1,000 per month of income. Of late, as companies try to preserve their capital, several have started offering Scrip Dividends (also known as Dividend Reinvestment) options which I have opted to subscribe to, and thereby increasing the number of shares that I owned of those companies.  I'm doing so with the assessment that these stocks are not going the way of the dodo bird over the next 5-10 years.

In many cases, the dividend yields have gone way beyond 4% compared to the original cost of the shares as many of these companies have consistently raised their dividends year on year. It sure feels *shiok* to see a stock that cost $1,000 generating an annual dividend of $100 per year and growing. Must say though, that there aren't as many SGX companies that behave like that compared to US stocks on the NYSE. The later have many more companies with a long history and consistent track records. Unfortunately, that also comes along with the 30% withholding tax.

Happy investing!

Related:
Where Lies the Portal to Wealth?
Pattern of Behaviour - A review of 2013

SRS Adjustments

From 1 Jan 2011, the Supplementary Retirement Scheme (SRS) contribution limit would be raised to $12,750 from the current level of $11,475.

See: Elaboration on SRS by IRAS