You will be able to build a model that follows one SRS contribution from the relief to the withdrawal.
Open your tax workbook, add a new tab and name it "SRS model". Keep two things beside you: your rebuild sheet from lesson 1.4, "Rebuild your tax bill from scratch", and the IRAS pages on SRS. With them you can turn the rule from lesson 4.4, "When SRS saves tax and when it does not", into a model that uses your own numbers. The model follows one year's contribution from the tax relief you get now, through decades of growth, to the tax you pay when you take the money out, and then compares the result with investing the same money outside SRS.
Shu Ting (an invented example, as are all her figures) likes the rule from lesson 4.4. Before she puts S$10,000 into an account she can't touch for thirty years, she wants to see the rule work on her own numbers. She opens her tax workbook, adds the "SRS model" tab and gives herself thirty-five minutes to build it.
At the top of the tab, set up a block of clearly labelled input cells:
Contribution, which must be within the current IRAS limit Tax saved now Assumed yearly return, after costs Years to first withdrawal, counted from now to your statutory retirement age Effective withdrawal rate
Every input except the contribution is an assumption, so label each of those cells as an assumption. The return and the withdrawal rate are guesses about decades ahead, so you will test several values for each once the model works.
The effective withdrawal rate is the share of the money you withdraw that you expect to lose to tax. It stands for the two things explained in lesson 4.3, "The tax on withdrawal, and what early withdrawal costs": the taxable share that IRAS sets, and the rate that taxable part would be taxed at in the years you spread your withdrawals over.
Shu Ting enters a contribution of S$10,000, a return of 4%, thirty years to first withdrawal and an effective withdrawal rate of 1.5%.
Tax saved now is the difference in tax between your expected chargeable income with the contribution and without it, worked out through the band formulas. The cell should hold a formula linked to your rebuild sheet, not a typed number. Don't get it by multiplying the contribution by your marginal rate either. Take your expected chargeable income, subtract the contribution, run both figures through the band formulas and use the difference in tax. This method catches a contribution that pushes your income down into a lower band, which simple multiplication by the marginal rate would miss.
Shu Ting expects chargeable income of S$79,000. Taking off S$10,000 leaves S$69,000, which is still inside the 6% band of the course's practice table, so the difference in tax, and her tax saved now, is S$600.
The balance at withdrawal is contribution x (1 + return) ^ years, which you can write as one spreadsheet formula. The tax on the way out is that balance x the effective withdrawal rate.
For Shu Ting, 1.04 to the power of 30 is about 3.24, so her S$10,000 grows to about S$32,434. Tax at 1.5% of S$32,434 is about S$487, which leaves S$31,947 in her SRS column.
If you want to work out the withdrawal rate rather than guess it, add a detail table below the model with one row per withdrawal year. Its columns are the amount withdrawn, the taxable part using the IRAS share, any other taxable income you expect that year, and the tax from the band formulas. The effective rate is total tax divided by total withdrawn. Use the current IRAS rules for the taxable share, keeping in mind that they may change.
Without SRS, the contribution would have been taxed as income, so the amount left to invest is the contribution minus the tax saved now. Invest that amount outside SRS at the same return for the same number of years. Long-term investment gains are generally not taxed in Singapore, so nothing comes off the outside amount at the end; Module 5, "Declare investment, rental and side income correctly", covers the exceptions. The net benefit is the SRS amount after withdrawal tax minus the outside amount.
Shu Ting would have S$10,000 - S$600 = S$9,400 to invest outside SRS, and it grows to about S$30,488. Her net benefit is S$31,947 - S$30,488, about S$1,459. This matches the rule from lesson 4.4: the gap between her rate now of 6% and her effective withdrawal rate of 1.5%, applied to the grown balance of S$32,434.
A single answer from a thirty-year model isn't worth much on its own. Change one input at a time and watch how the net benefit moves.
Shu Ting first lowers the return to 2%. Her balance falls to about S$18,114 and her net benefit to about S$815, which is still positive. A lower return shrinks the benefit but keeps it positive as long as the gap between the two rates stays the same.
She then puts the return back to 4% and raises the effective withdrawal rate to 6%, equal to her marginal rate now, and the net benefit falls to zero. Above 6%, SRS would leave her worse off. This test shows her what would have to go wrong for SRS to hurt: enough other taxable income in retirement, or a change in the rules, pushing her withdrawal tax above today's rate.
The numbers also leave out liquidity. Money in SRS is unavailable until statutory retirement age, and an early withdrawal makes the whole amount taxable and adds a penalty. Write one line under your model saying what the numbers leave out. Shu Ting's line notes that her S$10,000 is locked until statutory retirement age and that withdrawing early would make all of it taxable plus a penalty. She accepts the lock-up because her emergency fund and near-term goals are already funded without this money.
Build yours with your own figures, run the same two tests, and write the net benefit of one year's contribution for the activity.
Build the model using your own figures. Write down the net benefit of one year's contribution compared with not contributing.
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