Set a sensible order for drawing on your cash, investments, SRS and CPF.
Jasmine is about to start her first year without a salary. Her money sits in 4 places: cash and deposits, an investment account, an SRS account and CPF. She needs about S$46,000 that year, and any of the first three accounts could pay it.
Her instinct is to take a little from each account so that none runs down too fast. Spreading withdrawals evenly feels balanced, but it wastes tax-free years, sells shares at random times and leaves her unclear about what each pot is for. Lesson 6.2, "A simple drawdown order", in the course "Financial independence: planning the number and the path", gives the default order and the reasons for it. The task now is to turn that draft into a year-by-year order. You do it by working out when each account opens and then applying three rules.
The order starts with dates, because you can't draw from an account before it opens.
Cash and a personal investment account are open at any age. In Singapore, IRAS does not generally tax capital gains for individual investors, so selling shares or fund units held in your own name usually creates no tax bill. Tax can apply if IRAS treats you as trading as a business. Apart from that case, these two are your most flexible accounts.
You can withdraw from SRS without penalty from the statutory retirement age that applied when you made your first contribution. If you withdraw before that age, you pay more tax plus a penalty, under rules published by IRAS. From that age, only part of each withdrawal is taxable, and you can spread your withdrawals over a number of years.
CPF pays out mainly through CPF LIFE. Payouts start from the payout eligibility age, or from a later start age that you choose. Depending on cohort rules, some CPF savings may be withdrawable from 55. Check both CPF ages on cpf.gov.sg.
Jasmine's cash and investments are open now. Her SRS opens from 62 in this example, and her CPF LIFE payouts start from 65. The years before CPF LIFE starts are her bridge years, and her other accounts have to pay for them.
Rule 1: spend safe money first in the early years. Sequence risk is the risk that poor returns early in drawdown do lasting damage, and it is highest in the first years. Lesson 5.1, "Why a crash early in retirement does more damage", puts numbers on it. Pay the early years from safe money, which is your cash and the ladder you built in lesson 3.1. That way you avoid selling shares in a fall just after you stop work. Growth assets you leave alone early on get time to recover from any fall and to grow.
Rule 2: draw taxable money in low-income years. SRS is the account where timing changes the tax you pay. For SRS timing, your taxable income in a year is the taxable part of your SRS withdrawals plus any other taxable income, such as part-time pay or rent. Singapore income tax is progressive, so the same withdrawal costs less tax in a year with little other taxable income. Place your SRS withdrawals in low-income years, and spread them over as many of those years as the rules allow. Lesson 3.3, "Time SRS withdrawals around your other income", works through the timing in detail.
Rule 3: sell investments when prices suit you, whatever the date. The investment account refills your cash. It doesn't have to fund any particular year. In a good year, sell more and top up cash. In a bad year, sell nothing and live on cash and the ladder. Module 4 turns this rule into written refill rules.
At 60 and 61, Jasmine spends cash and short deposits, topped up by part-time pay. Her shares stay untouched.
At 62 her SRS opens, but she still has part-time pay that year. SRS withdrawals would raise her taxable income, so she leaves SRS alone and spends the first ladder rung.
From 63 to 70 her part-time work has ended, so these are low-income years. She draws SRS in roughly equal amounts over the eight years from 63 to 70 inclusive, which keeps each year's taxable amount small. SRS plus ladder rungs pay for her last two bridge years, 63 and 64.
From 65 CPF LIFE starts and covers a little over half of her essential spending. SRS and her investments cover the rest. She sells investments mainly in years after markets have done well.
From 71 her SRS is empty. CPF LIFE pays the floor. Her investment account pays everything above the floor and tops up a cash reserve each year.
Each pot has a job and a period. Jasmine didn't draw from every account at once, and she didn't start CPF LIFE early just because it was available. Her whole plan fits on four lines:
Cash and ladder: pay ages 60 to 64. SRS: pays ages 63 to 70. CPF LIFE: pays the floor from 65. Investments: refill cash for life.
The order is a default, and there are good reasons to depart from it.
After a market fall, spend more from cash and the ladder and less from investments, even if this goes against the plan. Covering your spending after a fall is what safe money is for.
In a year with unusually high income, such as one with a large consulting fee, skip that year's SRS withdrawal and take it in a quieter year.
If your health changes or you need a large lump sum, cash and the investment account are the most flexible places to draw from. Keep enough in them to absorb a shock, so that not everything is locked into SRS or CPF.
If you defer CPF LIFE, which lesson 2.2 discussed, the bridge gets longer. Your investments and SRS then have to carry more of the early years, but the order itself stays the same.
Work through it in this order:
First, list every account and find the age at which each one opens for withdrawal without penalty.
Next, apply the three rules. Fund the early years from cash and the ladder. Place your SRS withdrawals in low-income years, spread evenly over as many years as the rules allow. Sell investments to refill cash in good market years, and sell nothing in bad ones.
Then lay out the result year by year, giving each account a job and a period. Adjust it when markets fall, when your income jumps, when your health changes or a large need comes up, or when you defer CPF LIFE.
Finally, write it on one page. For each account, put down what it holds, the age it opens and its job in the plan.
Make the same list for your own accounts. You'll need the opening age for each one, checked on cpf.gov.sg and the IRAS website.
List your accounts in the order you would draw from them, and next to each one write the age at which you can start withdrawing.
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