MAKE SAVING MONEY EASIER
– Andrea Kennedy, certified financial planner Forced savings schemes are a convenient and effective way to save and make money. Here are four you need to know about: SUPPLEMENTARY RETIREMENT SCHEME (SRS) WHAT IT IS: SRS is a voluntary tax deferment savings scheme to encourage people to put money aside for retirement, over and above their CPF savings, says Alfred. You can contribute various amounts up to a cap of $12,750 (for Singapore residents) and $29,750 (for foreigners), a year. The amount you contribute each year goes towards reducing your chargeable income and thus, your tax amount. PROS: What you contribute to the SRS can be used for a wide range of investment products such as shares, unit trusts, exchange-traded funds and real estate investment trusts. As this is parked in your CPF account, it’s also harder to access the money. CONS: SRS monies withdrawn before you’re 62 years old are subject to a 5 per cent penalty, on top of being taxable, says Alfred. Also, after 62, 50 per cent of monies withdrawn are subject to tax. The scheme allows you to withdraw SRS monies over a period of 10 years, which helps spread out the taxable amount and, in turn, reduces the overall tax payable. ENDOWMENT INSURANCE PLAN WHAT IT IS: Ideal for people who don’t like to take huge financial risks, an endowment insurance plan can be a good way to save. You simply put money aside every month and receive your payout at the end of the term. PROS: It’s a low-risk way to get moderate returns on your savings. CONS: If you cash out before the term is up, you pay a high penalty. INVESTMENT-LINKED PLAN WHAT IT IS: This is an investment plan with insurance protection, says Alfred. For example, if you save $1,000 a month, a certain amount will go towards paying for the insurance or mortality charges, and the balance is invested. PROS: “It’s like a two-in-one or combo savings plan – investment plus insurance,” Alfred points out. CONS: As you get older, the mortality charges go up and this will eat into your returns.
INVESTMENT-LINKED PLAN WITH NO INSURANCE WHAT IT IS:
This is an investment plan you can get through your insurance company, but without the insurance. If you take a 10-year plan, for example, and make no withdrawals during that time, you will be rewarded with substantial returns. PROS: Unlike bank savings schemes that are flexible, this kind of plan forces you to save and makes it hard for you to access the money before the end of term. CONS: If you cash out early, the exit charges can be pretty huge, Alfred warns.