You will be able to explain a default drawdown order and when to change it.
On the first working day after you stop work, no salary arrives. Your spending carries on, so money has to come from somewhere, and the question of where is less obvious than it seems. Sell some shares? Use the cash? Start on SRS? Each choice affects your tax, your exposure 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. This lesson puts them in a sensible default order, and shows when you might change it.
A widely used starting point runs like this. Spend first from a cash buffer, a few years of spending held somewhere safe and easy to reach. Refill the buffer from your taxable investments, meaning investments in your own name, in good years. Begin drawing on SRS once withdrawals are taxed lightly, from your statutory retirement age. And from your payout eligibility age, let CPF LIFE pay the floor under your essential spending, with the portfolio covering only the gap.
The logic is simple. Cash is spent first because it is there for exactly that, and because spending it in a bad year means you do not have to sell shares at low prices. Taxable investments come next because they are accessible at any age and, as below, simple to draw from in Singapore. SRS waits until the tax treatment is favourable. CPF LIFE starts when the rules allow, or later if you choose to defer.
According to IRAS, Singapore does not generally tax capital gains for individual investors. If you sell shares or fund units that have risen in value, you do not normally pay tax on the gain, unless IRAS considers you to be trading as a business. That makes your own investment account a clean source for the bridge years. You sell what you need, and the money is yours.
There are still costs to watch. Some overseas investments have tax withheld on dividends, as lesson 2.2 noted, and every sale carries brokerage or platform fees. But there is no capital gains bill at the end of the year. That is not true in many other countries, and it is one reason plans copied from American sources can be needlessly complicated here.
SRS is different, because withdrawals count towards your taxable income. From your statutory retirement age, only part of each withdrawal is taxable, and the rules let you spread withdrawals over a number of years.
Spreading matters because Singapore's 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 land in higher brackets. Spread over several years in which you have little other income, each year's taxable amount can stay low.
This is why the years after you stop work can be useful for SRS. With no salary, your taxable income may be small, so moderate SRS 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, and check the tax rates and reliefs for the year you will withdraw.
The default is a starting point, and there are good reasons to depart from it.
If your statutory retirement age falls during your bridge years, you might start small SRS withdrawals alongside your taxable investments, rather than waiting until the taxable account is spent. That uses up the SRS over more low-income years.
After a market fall, you would spend from the buffer rather than selling shares, even if the default says otherwise. That is what the buffer is for, as lesson 6.3, The cash buffer that buys you time, shows.
If you are considering deferring CPF LIFE to get a larger payout, the portfolio has to cover more years on its own. That shifts more of the early drawdown onto taxable investments and SRS.
And if part-time work brings in a real income, as in lesson 5.2, you may draw less in those years and keep more invested.
Drawing down savings well in later life involves more than an order of accounts. Choosing a CPF LIFE plan, timing withdrawals around tax, planning what you leave to others and making a will are all taught in Retirement & Estate. This lesson gives you a first draft that is good enough to test the plan, and Retirement & Estate turns it into a full decumulation strategy.
Priya, from the earlier modules, wrote her first draft with made-up ages: buffer and taxable investments from 50, small SRS withdrawals spread from 63 in this example, CPF LIFE from 65, with the portfolio then covering only the gap. It fits on three lines, and it tells her which pot pays for each stage of her life.
You will need your list from lesson 6.1 open beside you. The activity asks for two drafts, one for the bridge years and one for after CPF LIFE begins, so think about each period separately.
Draft your drawdown order for the bridge years and for the years after CPF LIFE begins.
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