Why I started contributing to SRS

My annual income tax ranges from ~$700 - $2000 since I started working 5 yrs ago. The big range is due to my rapid salary increment and tax breaks given by the government earlier on.

The following tax reliefs are applicable to me:

• Earned income
• NSman
• Parents care
• CPF mandatory contribution

After all the tax reliefs above which sum up to at least $40k, my highest income bracket is still in the 7% range.

Supplementary Retirement Scheme (SRS) encourages Singaporeans to put more into retirement savings with their money locked away until they reach the statutory retirement age. Withdrawing before the retirement age will incur a penalty.

I thought hard about it and realised that since I could invest the SRS money and save $15,300 x 7% = $1071 worth of tax annually at the same time, why not? $1071 compounded at 9% annually can give you ~$14,000 at the end of 30 years!

I most likely will not touch the $15,300 (SRS contribution limit) in the near foreseeable future hence I am alright with it being locked away invested in stocks for the next 3 decades. I have more than sufficient cash and insurance to tide any emergency.

There's really no difference investing for the long-term between using an SRS and non-SRS account.

My only regret is that I did not start SRS contribution a few yrs back... And also unlike the parents care relief, it's not possible to backdate your SRS contribution to save on taxes in previous years.

If the government allowed optional contribution to CPF OA as a tax relief, I would have done it instead, as CPF monies can always be withdrawn tax-free when you retire and be used to pay for housing. I feel that it is safer to contribute to CPF than SRS as there may be adverse changes to SRS policies 30 years later.

How much to contribute?

Based current stats, one can withdraw an annual amount of $40,000 for a max of 10 years tax-free from an SRS account upon retirement. Withdrawing $40,000 is tax-free as only 50% of the withdrawn amount, which is $20,000, is taxable and this $20,000 in turn falls below the threshold for taxable income. Hence one can afford to accumulate a max of $400,000 in his SRS account without incurring any taxes. This is also assuming the person does not have any other income when he retires.

Assuming an annual return of 9% for 30 years, one will only need about $30,000 in his account today for compounding to $400,000. With a lower annual return of 5%, one will need about $92,000 instead.

With this in mind, it is important that we do not over-contribute as we may end up eroding the tax savings in the future. This also brings to mind the usefulness of an SRS account. Based on a decent annual return, one can only make 2 to 6 annual contributions at the current limit of $15,3000. Any further contributions in one's lifetime may cause him to exceed $400,000, thus eroding the tax savings.

The above calculations should serve as a guideline only as the personal income tax rate will change over time. One has to review his SRS account annually and make any necessary adjustments to achieve an optimal outcome.

Affordable car ownership

A recent video by Talking Point got me thinking.

by gov.sg

Car ownership in Singapore is certainly one of the most expensive in the world. You can easily buy the same car in the US for only half or third of the price. Yet many of us here in Singapore across the income levels still own cars.

Data from the Singapore Department of Statistics (Singstat) show that on average, 16.3% of households earning a monthly income of S$3,000 own at least one car.

I am sure a lot more people can buy cars as they can afford to do so but they chose not to.

Many people buy cars for the following reasons: necessity, convenience, "status", "show off", and having too much disposable income.

Why I drive

My reason was that I became weary of the daily commuting experience to/fro work. Thus, I wanted to improve my quality of life in this aspect. 

You see, I live in one of the most easily accessible places that boosts a large residential population (heartlanders). 

Everyday, I had to squeeze into buses with a beehive of people during the peak period of 7-9pm when I am getting home. Whenever a bus arrived, the huge-ass crowd would flock immediately to it. 

I was always disgusted by the "kiasu-ness" and ungracious behaviour of these people. Over time, I succumbed to crowd pressure and followed suit and hence I became disgusted at myself as well for doing so but I simply had no other choice. I told myself this is not me; I shouldn't become yet another kiasu person. This brings up another point about how kiasu-ness came to be in Singapore which I may touch on in the future. 

I also enjoy driving and over time I require less mental concentration as it becomes more intuitive and "sub-conscious" requiring less active concentration so I could still drive home safely after a long day at work. 

Anyway, back to the main point. What got me sharing this post is how the costs in the infographics are somewhat exaggerated. I think the costs are based on the driver's workplace being in the land-scarce Central Business District  (CBD) where he/she has to navigate through the ERP minefield and pay for  pricy season parking and higher consumption of petrol due to traffic congestion. 

Therefore, it sucks if your workplace is in the CBD.

My expenses

Mine is not hence my costs are as such:

1. For ERP, I only pay $1 per workday as I go:

• KPE -> MCE to work every morning (ERP@MCE shut down at 9 am). I try my best to leave home in the early morning at the right time so it would be 9 or slightly after when I reach the ERP gantry.
• MCE -> KPE after 7pm to home ($1 only). If I wait til 7.30pm, it will be free.
• I hardly drive to town areas as it is an ERP minefield.
  
• I top up my petrol tank only 3 times a month on average for about $55 each time after credit card and station discount. 
• I drive daily including weekends but I optimise my driving style to save petrol, i.e., I drive smoothly by accelerating and decelerating gradually. 
• Also the moment I see a red light I would immediately stop acceleration, i.e., don't rush to wait. 
• Make use of expressways as much as possible and go by the rightmost lane to exploit the speed limit. 
• My daily route is pretty smooth as I chose MCE & KPE (rather than Lornie Road) hence I am able to achieve high fuel economy. The $1 ERP fee (and longer distance) more than compensates for the petrol required.
• Pump only the minimum petrol grading your car needs. For e.g., my car only needs RON 95.
  
• I pay about $2000 for insurance this year which is 2-3 times higher than what experienced drivers pay for as I just got my license and had a minor incident last year. However, over the next few years I would expect this to drop to less than $1000 due to No-claim discount (NCD) and more years in driving.
  
• I top up my cash card once a month on average for $50. I generally avoid parking in expensive places and go for flat entry-fees after 5/6 pm such as Suntec, Plaza Singapura. My workplace season parking price is tagged to HDB's rate.
  
• Servicing cost is also exaggerated. The first few years you should have free servicing from the car dealer. If maintained properly, you shouldn't need much repairs in the first 3-5 years. Scratches are common and you can accumulate them for repaint every few years. Even when repainting you can choose to do for certain parts of the car only.
  
• I wash my car on average bi-weekly for $8 (at Esso) even though it does gets dusty often when parked in my home's unsheltered carpark. I don't vacuum the floor mats as I can tolerate the dried grass accumulation. I generally let them be cleaned up once a year when servicing. Lol, gross right?
  
• For loans, you have to find the optimal balance between the amount to borrow and pay upfront. Think about your near-term need for cash and the opportunity cost for paying too much cash upfront. If you think you can make more dividends from REITs and stocks than the loan interest, you should pay less cash upfront. 

So in total the annual expense (excluding loan) for me is about $8000 only which may stay the same or go down in the years to come as the insurance becomes cheaper.

Compared to taking taxis

The total car ownership cost is about $18,000 for an entry-level car including the depreciation. That's about $50 worth of taxi fare per day on average. So which do you think is better?