Two Million Shekels: The Retirement Sweet Spot in Israel

Having two million shekels in savings marks a significant turning point for retirement in Israel, shifting the question from 'if' to 'how.' This sum makes early retirement before the age of 67 a realistic option, rather than just a wish.

For someone retiring at 67, two million shekels typically converts to about 10,000 shekels per month for life, using a conversion rate of around 200. This is supplemented by the state's old-age pension, which adds approximately 1,838 shekels basic, rising to 2,300-2,500 shekels with seniority. The total monthly income for a single retiree would be between 12,300 and 12,500 shekels, slightly more than the net average salary in Israel of about 11,500 shekels, but without the need to work.

For a couple, the financial picture is even better. With two state pensions, their combined income could reach around 15,000 shekels monthly (10,000 from savings and 4,500-5,000 from pensions), allowing for a comfortable retirement as their expenses are not double those of a single person.

The two million shekel threshold also introduces flexibility in how retirement funds are managed. Unlike with one million shekels, where all funds are typically converted to a lifelong annuity for security, two million allows for splitting funds. One option is a full annuity for a guaranteed 10,000 shekels monthly, but this forfeits the principal to heirs. Alternatively, withdrawing according to the 4% rule yields about 6,700 shekels monthly, leaving the principal intact. A common recommendation from retirement advisors is a hybrid approach: securing an annuity to cover essential fixed expenses like housing and healthcare, while keeping the remainder accessible for variable costs.

However, splitting funds involves understanding regulations. Pension and study fund contributions made after 2008 are considered annuity funds and cannot be freely withdrawn as cash without significant taxes. To withdraw a lump sum, a minimum monthly annuity must first be secured, with tax exemptions applying only to a portion of the withdrawal. This means that if most of the two million shekels are in a pension fund, a large part will be converted to an annuity regardless of preference. Accessible funds typically come from sources like study funds, private portfolios, or older savings predating 2008.

Retiring at 60 with two million shekels is also feasible, though it requires careful planning. This age gap means seven years without state pension benefits, and a less favorable conversion rate (around 230-240) due to the longer payout period. This yields approximately 8,300 to 8,700 shekels monthly, manageable especially with owned housing. Upon reaching 67, the addition of the state pension increases this to about 11,000 shekels. Key considerations include maintaining employment rights, health and disability insurance, and potential supplementary income.

Retirees should also anticipate changes in expenses. While costs like commuting and dining out may decrease, healthcare expenses, including supplementary insurance, medications, and home utilities, can rise. Initial retirement years might see increased spending on leisure, followed by a potential surge if long-term care becomes necessary. Furthermore, larger savings can lead to financial support for children, such as down payments for housing, or care for elderly parents, which needs to be factored into retirement planning to avoid depleting funds unexpectedly. The cost of long-term care insurance, especially when purchased at an older age, is also a critical factor.