Expat Portfolio

Discuss about the different financial investment options, financial markets, common investment products and what is trending in the market.
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malcontent
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Expat Portfolio

Post by malcontent » Thu, 07 Oct 2021 2:03 pm

I am surprised this subject doesn’t get more attention. As an expat it is even more important to save and invest compared to your fellow countrymen/women back home, because you often miss out on government funded pension schemes and other social safety nets.

Singapore offers few meaningful substitutes, so many expats are left to self-fund their own retirement. And, if you seek out local advice and investment options, you are taking a major gamble — you could end up with something that is both costly and inappropriate for either your home country or other countries you may become a future tax resident in.

For this reason, it really pays to educate yourself and be extremely well informed about what investment products make sense, so you don’t end up making costly mistakes, pertaining to tax, compliance, market underperformance, excessive fees or lock-ins.. to name a few.

One piece of good news is that it has never been a better time to be an investor. The options available have never been better, more accessible or cost effective, but it is not going to be obvious unless you are well informed (and not taking advice from a from a local investment advisor).

The other piece of good news is that you really don’t need too much customization when it comes to building your portfolio as an expat in Singapore. Much of the prominent advice you get from global sources is very much applicable to you, and you can simply apply a varying amount of tilt based on your planned retirement destination, whether that is here or anywhere else in the world.

So what should a typical portfolio composed of? The clear and unequivocal answer is Exchange Traded Funds (ETFs). You will buy these where you have the best selection, lowest cost and highest trading volume… the London stock exchange or the New York stock exchange (for US persons only). This can be as simple as a two fund portfolio, for example:

London | New York
60% VWRA | 60% VT
40% CRPA | 40% BND

This is a generic 60/40 split between global equities and bonds. You can increase the equity portion depending on the number of years before you retire. You can also substitute a portion global equity exposure and apply an equity tilt based on your retirement destination.
Last edited by malcontent on Thu, 07 Oct 2021 3:29 pm, edited 1 time in total.
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Re: Expat Portfolio

Post by smoulder » Thu, 07 Oct 2021 2:55 pm

Probably good to have a write up on the usage of SRS as a tool to save some taxes in Singapore.

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Re: Expat Portfolio

Post by malcontent » Thu, 07 Oct 2021 5:20 pm

smoulder wrote:
Thu, 07 Oct 2021 2:55 pm
Probably good to have a write up on the usage of SRS as a tool to save some taxes in Singapore.
That is a great point. For expats, SRS is really the only tax privileged retirement vehicle you can take advantage of in Singapore. It works somewhat similar to an IRA or 401(k) account.

SRS accounts do have several limitations, but they can be worth considering, especially if you are in a higher, double-digit tax bracket.

If you remain on an EP you can make larger contributions and withdraw in full after 10 years, however, you must pay tax on 50% of the balance at the end.

If you are no longer a tax resident in Singapore in the year you withdraw, you’ll pay a minimum of 15% tax or the resident rate, whichever is higher. If this is you, then you should expect to pay at least 7.5% tax on the final balance. Think of that as a break-even point, so if you are in the 19% bracket, your net savings is 11.5% (assuming you invest those savings and earn the same returns as you do in your SRS).

The ideal way to hack this is to work here exactly 10 years plus one extra day in calendar year 11. By remaining a tax resident in Singapore that one extra day, you’ll have virtually no other income for that year — and can then withdraw the entire thing and only half the resident tax rate applies.

Alternatively, if you decide to retire in Singapore and remain a tax resident, you can spread the withdrawals over 10 years and pay little or no tax.

The biggest drawback to the SRS is that investments are limited to what is available locally.

Personally, I believe one of the best investment options is S27 listed on the SGX, which is one and the same as US listed SPY (S&P 500 Index ETF) cross-listed on the Singapore exchange. This in not a PFIC and can be held by both US and non-US persons alike. Although 30% withholding tax* applies to dividends, this is a relatively minor cost and combined with the expense ratio of less than 0.1%, the total expense totals up to less than 0.5% annually, which is still among the lowest expenses among locally available investment products.

Almost any portfolio is going to have some US equity exposure anyway, so after adding this you can always reduce US exposure elsewhere in your portfolio to compensate, if desired.

* US persons can claim back this withholding on their US tax return
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Re: Expat Portfolio

Post by Wd40 » Mon, 11 Oct 2021 1:04 pm

What I like about being a Singapore expat apart from the awesome convenience that the state already provides, we don't need to spend on cars, low taxes etc is that savings rate is so awesome. Couple that with no capital gains tax, this is too awesome a deal to give away.

I was considering looking for opportunities in the UK, now that post brexit it is much easier for Indians to find jobs there. But it is just not attractive financially.

Consider this my salary gross incl bonus 120k SGD my tax rate is less than 7%. I am told in the UK, for a much higher income of 70k Sterling pounds(130k SGD) my take home will be equivalent of 96k SGD, then on top there will be capital gains tax on my networth which I will have to pay to UK regardless of where I invest in the world. What a shit deal is that?

So I just plan to stay put here as long as the going is smooth and keep saving and investing large chunks of money.

No SRS crap, that is only for PRs and SCs. Expats better stay with no strings attached. SRS you need to pay 15% of taxation at withdrawal when you are like 60 and if you are non resident at that time you are screwed.

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Re: Expat Portfolio

Post by Wd40 » Mon, 11 Oct 2021 1:08 pm

smoulder wrote:
Thu, 07 Oct 2021 2:55 pm
Probably good to have a write up on the usage of SRS as a tool to save some taxes in Singapore.
SRS is not a good deal for expats, you are PR right? You should visit the HWZ forum is more focused for locals. There is lot of info for SRS over there.

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Re: Expat Portfolio

Post by smoulder » Mon, 11 Oct 2021 2:13 pm

Wd40 wrote:
Mon, 11 Oct 2021 1:08 pm
smoulder wrote:
Thu, 07 Oct 2021 2:55 pm
Probably good to have a write up on the usage of SRS as a tool to save some taxes in Singapore.
SRS is not a good deal for expats, you are PR right? You should visit the HWZ forum is more focused for locals. There is lot of info for SRS over there.
Yes I am a PR. You are right, my requirements are different from someone who's on EP.

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Re: Expat Portfolio

Post by malcontent » Mon, 11 Oct 2021 2:57 pm

Wd40 wrote:
Mon, 11 Oct 2021 1:04 pm
No SRS crap, that is only for PRs and SCs. Expats better stay with no strings attached. SRS you need to pay 15% of taxation at withdrawal when you are like 60 and if you are non resident at that time you are screwed.
I wouldn’t call the baby that ugly, but you are correct that SRS is not that good of a deal.

I don’t put my own money in, but last year my employer switched to a defined contribution plan via SRS (this just puts EP holders on an equal footing with locals for employer contributions). So I was forced into it.

Even as a PR/SC you might want to wait until the latter half of your career, when you would presumably be in a higher tax bracket and the money contributed won’t have the chance to compound so much that it becomes taxable.

I plan to pay the 7.5% tax after 10 years and be done with it. I will then send the S27 shares to the US where they will become SPY and I will not need to pay any capital gains tax until they are sold. They will just form part of my taxable retirement portfolio.
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Re: Expat Portfolio

Post by malcontent » Tue, 12 Oct 2021 12:11 pm

smoulder wrote:
Mon, 11 Oct 2021 2:13 pm
Wd40 wrote:
Mon, 11 Oct 2021 1:08 pm
smoulder wrote:
Thu, 07 Oct 2021 2:55 pm
Probably good to have a write up on the usage of SRS as a tool to save some taxes in Singapore.
SRS is not a good deal for expats, you are PR right? You should visit the HWZ forum is more focused for locals. There is lot of info for SRS over there.
Yes I am a PR. You are right, my requirements are different from someone who's on EP.
If there is a reasonable chance that you might retire in SG — that makes a big difference in the value equation for SRS, because you can spread the withdrawals over 10 years. Assuming tax rates don’t change, you can take out $40k per year tax free starting at the statutory retirement age (currently 62). No tax on the way in, and none on the way out. That is the perfect way to play it.

Although I plan to take it all out after 10 years, it also depends. If we end up retiring here, I would just leave it for another 4 years and then spread the withdrawals over 10 years. That is a decision I need to make in 2030.
It’s not what happens to you, but how you react to it that matters ~ Epictetus

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Re: Expat Portfolio

Post by smoulder » Tue, 12 Oct 2021 3:13 pm

malcontent wrote:
Tue, 12 Oct 2021 12:11 pm
smoulder wrote:
Mon, 11 Oct 2021 2:13 pm
Wd40 wrote:
Mon, 11 Oct 2021 1:08 pm

SRS is not a good deal for expats, you are PR right? You should visit the HWZ forum is more focused for locals. There is lot of info for SRS over there.
Yes I am a PR. You are right, my requirements are different from someone who's on EP.
If there is a reasonable chance that you might retire in SG — that makes a big difference in the value equation for SRS, because you can spread the withdrawals over 10 years. Assuming tax rates don’t change, you can take out $40k per year tax free starting at the statutory retirement age (currently 62). No tax on the way in, and none on the way out. That is the perfect way to play it.

Although I plan to take it all out after 10 years, it also depends. If we end up retiring here, I would just leave it for another 4 years and then spread the withdrawals over 10 years. That is a decision I need to make in 2030.
I am indeed planning to retire in Singapore.

I have opened myself an SRS account. However, personally I'm wondering if SRS is for me - my considerations are as follows -
1. What if I want to start drawing down before 62, say 55.

2. Supposing I do draw down from the age of 62, somehow I can't imagine living off 40k per year. I'm thinking more along the lines of 80k. I may not always spend that much, but forcing myself much lower just because I would negate the tax advantages does sound potentially restrictive.
Last edited by smoulder on Tue, 12 Oct 2021 3:15 pm, edited 1 time in total.

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Re: Expat Portfolio

Post by smoulder » Tue, 12 Oct 2021 3:14 pm

By the way, mal, are you considering retiring in Singapore? What's the reason?

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Re: Expat Portfolio

Post by malcontent » Tue, 12 Oct 2021 6:58 pm

Even if you withdraw $80k only half is taxable when withdrawn. Based on current tax rates, that would only result in $350 in taxes. So if you’re sure to retire in SG, it’s not a bad deal at all. I also won’t recommend depending on SRS alone, maybe as a bridge between age 62 retirement and collecting CPF Life from age 70 onwards.

I would consider retiring in Singapore. I’ve already lived here for a quarter century, but it depends on my kids and what they want to do after graduation. Family is my #1 consideration. We plan to travel in retirement, and Singapore isn’t a bad jumping off point, but there are pros/cons.

One guy I worked with in Singapore went back to the US and was last seen driving around Florida in a new Corvette convertible. Seems like he is enjoying himself there!
It’s not what happens to you, but how you react to it that matters ~ Epictetus

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Re: Expat Portfolio

Post by Wd40 » Wed, 13 Oct 2021 1:53 pm

malcontent wrote:
Mon, 11 Oct 2021 2:57 pm
Wd40 wrote:
Mon, 11 Oct 2021 1:04 pm
No SRS crap, that is only for PRs and SCs. Expats better stay with no strings attached. SRS you need to pay 15% of taxation at withdrawal when you are like 60 and if you are non resident at that time you are screwed.
I wouldn’t call the baby that ugly, but you are correct that SRS is not that good of a deal.

I don’t put my own money in, but last year my employer switched to a defined contribution plan via SRS (this just puts EP holders on an equal footing with locals for employer contributions). So I was forced into it.
That's quite odd for your org to choose SRS. I work in banking and most of the global banks I know and my current bank too uses Hong Kong based MPF private pension providers to make us expats on par with the local CPF. The lock in is only until we are with the company and when we quit we can withdraw the funds. I feel this is the best way to make expats on par with locals. SRS is way more restricted than even CPF. CPF you can withdraw in full without penalties when you give up PR, so to smoulder, I would suggest max out your voluntary CPF contribution it is much more beneficial than SRS for a PR.

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Re: Expat Portfolio

Post by malcontent » Wed, 13 Oct 2021 3:00 pm

My company is a bit unusual… very conservative, traditional, and American. For this reason we have several perks that are not commonplace here, but these apply to all local employees whether EP, PR or SC.

One is an ESPP with a company match, 50% match on up to 6% contribution of our pay toward buying company stock. This system was essentially replicated wholesale from the US.

Another is SRS contributions. PR/SC get the standard 17% in CPF up to $6,000 and then 10% in SRS above $6,000, up to a limit. EP get the exact same thing except it all goes to SRS.

One other oddity for US citizens is compulsory contributions to Social Security & Medicare, both employer and employee, which reduces my take home by 7.65% up to certain limits.

When I was younger I didn’t always appreciate all of these things, but over time it can really add up, and as you get closer to retirement, it starts to hit home.
It’s not what happens to you, but how you react to it that matters ~ Epictetus

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Re: Expat Portfolio

Post by malcontent » Thu, 14 Oct 2021 10:11 am

Probably another subject we should touch on is CPF and how that fits into ones portfolio.

Although I don’t have CPF, my spouse does, and I’m counting on that to cover 10% of our retirement income needs by age 70. While it’s not huge, every little bit helps. Having the assurance of future income means you can comfortably increase the equity allocation in your portfolio for higher long-term returns.

If you are a PR/SC you will want to maximize CPF to the fullest extent. As Wd40 rightly said, this should take priority over any SRS contributions. Your first priority should be $7k RSTU (retirement sum top up) annually, as long as your SA is below FRS. Your second priority should be VC (voluntary contribution) to the extent you will end the year below the statutory maximum $37,740 annual contribution limit. If your MA is below BHS, you should VC to MA so that you get the higher interest rate and tax relief. Doing an all 3 account VC usually doesn’t get you tax relief.

If you don’t plan on using the money sitting in your OA, you should consider transferring it to SA, to earn the extra 1.5% interest.

Once you get close to age 55 you can shield your SA and top up RA with cash to at least FRS, to preserve your SA (treat it like a very high yielding emergency saving account).

All of these little things add up. They represent money that is just sitting on the table, waiting for you to take it. The ideal retirement goal for CPF should be to have RA at the maximum ERS level, your MA at the maximum BHS level and your SA with as high of balance as possible.
It’s not what happens to you, but how you react to it that matters ~ Epictetus

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