Explain a default drawdown order and say when you would change it.
After you stop work, spend from a cash buffer first, refill it from your own investments in good years, start SRS withdrawals from your statutory retirement age, and let CPF LIFE pay for essential spending once it begins. Most people start from this default order, and you can change it when your situation calls for it.
No salary arrives once you stop work, but your spending carries on, so each month's money has to come from one of your accounts. Which account you draw from affects how much tax you pay, how exposed you are to a bad market, and how long each pot lasts. Lesson 6.1, "Know when each account opens up", listed your accounts by when they become available. Here they go into a default order. It is a widely used starting point, and you can depart from it.
Spend first from your cash buffer: a few years of spending held somewhere safe and easy to reach. In good years, refill the buffer by selling from your taxable investments, meaning the investments held in your own name. From your statutory retirement age, begin SRS withdrawals, when they are taxed lightly, and spread them over several low-income years. From your payout eligibility age, or later if you defer, CPF LIFE pays the floor under your essential spending. Your portfolio then covers only the gap between that floor and what you spend.
Cash goes first because paying for spending is what it is for. If markets fall, spending cash in that year means you do not have to sell shares at low prices. Taxable investments come next because you can reach them at any age and they are simple to draw from in Singapore. SRS waits until its tax treatment is favourable. CPF LIFE starts when the rules allow, or later if you choose to defer it in exchange for a larger payout.
According to IRAS, Singapore does not generally tax capital gains for individual investors. Gains from selling shares or fund units normally carry no tax, unless IRAS considers you to be trading as a business. This makes your own investment account a clean source of money for the bridge years, the stretch after you stop work and before CPF LIFE begins. You sell what you need and keep the money.
Costs still apply. Some overseas investments have tax withheld on dividends, as lesson 2.2 noted, and every sale carries brokerage or platform fees. What you will not get is a capital gains bill at the end of the year. Many other countries do tax capital gains, so drawdown plans copied from American sources can be needlessly complicated for someone in Singapore.
SRS withdrawals count towards your taxable income. From statutory retirement age, only part of each withdrawal is taxable, and the rules let you spread withdrawals over a number of years.
Singapore income tax is progressive: the first slice of each year's income is taxed at low rates or not at all, and higher slices are taxed more. If you take all your SRS money in one year, much of it may fall into the higher brackets. If you spread it over several years with little other income, each year's taxable amount can stay low. The years after you stop work suit this well. With no salary, your taxable income may be small, so moderate withdrawals may attract little tax.
The current rules, including the spreading period and the taxable share, are on the IRAS website. Check them before you plan the timing, along with the tax rates and reliefs for the year you will withdraw.
Four situations are common reasons to change the order.
If your statutory retirement age falls during the bridge years, you might start small SRS withdrawals alongside your taxable investments instead of waiting until the taxable account is spent. This spreads SRS over more low-income years.
After a market fall, spend from the buffer instead of selling shares, even when the default says to sell. Lesson 6.3, "The cash buffer that buys you time", explains that the buffer is there for this situation.
If you defer CPF LIFE for a larger payout, your portfolio has to cover more years on its own, so more of the early drawdown falls on taxable investments and SRS.
If part-time work brings in real income (see lesson 5.2), you may draw less in those years and keep more invested.
Priya, whom you met in the earlier modules, writes her first draft using made-up ages. From 50 she draws on her buffer and taxable investments. From 63, in this example, she takes small SRS withdrawals, spread over time. From 65 CPF LIFE starts, and her portfolio then covers only the gap. Her draft fits on three lines and tells her which pot pays for each stage of her life.
A draft like this is good enough to test your plan, though drawing down well in later life involves more than an order of accounts. The Retirement & Estate course covers choosing a CPF LIFE plan, timing withdrawals around tax, planning what you leave to others and making a will, and turns your draft into a full decumulation strategy.
Now write your own. Open your list from lesson 6.1 beside you. Write one draft for the bridge years, saying which pot pays from the age you stop work until CPF LIFE begins. Then write a second draft for after CPF LIFE begins, saying what CPF LIFE covers and which pot fills the gap. Think about each period separately, and note any of the four reasons above that would change your order.
Write down your drawdown order for the bridge years, and a second one for the years after CPF LIFE starts paying.
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