Should Israelis Take Pension at 60 or Wait Until 67?

New pension funds in Israel allow individuals to begin receiving pension payments at age 60 while continuing to work. However, a full tax exemption on pension payouts, known as 'eligible pension,' is only granted starting at age 67 for men. Before this age, pension income is taxed and added to one's salary, potentially pushing individuals into higher tax brackets.

A hypothetical scenario illustrates the financial implications. A 60-year-old earning a gross salary of NIS 25,000 per month could receive a monthly pension of NIS 7,200 immediately or wait until age 67 for NIS 9,100. Without considering taxes, taking the pension at 60 would yield NIS 604,800 by age 67. To recoup the difference of NIS 1,900 per month, one would need to live past 93 if taxes were ignored.

However, taxes significantly alter this calculation. For someone earning NIS 25,000, the pension received before age 67 is taxed at approximately 35%. This reduces the net monthly pension to about NIS 4,700, totaling roughly NIS 393,000 by age 67. After age 67, the pension is largely tax-exempt. In this scenario, the breakeven point, where the accumulated net pension from early withdrawal equals the total pension received after waiting, shifts to around age 84.

The decision hinges on individual life expectancy and financial circumstances. While the average Israeli male lives to about 85, those with a family history of longevity or good health might benefit from waiting for the higher, tax-exempt pension. Conversely, individuals with health issues or those needing immediate funds for high-interest debt, mortgages, or to support children might find it advantageous to start receiving pension payments earlier, especially if their income and tax burden decrease.

Experts advise requesting multiple pension simulations from the fund, factoring in expected future salaries and taxes. It's also crucial to consider the impact on survivor benefits for a spouse and the long-term risk of outliving one's savings, which a higher pension at 67 can help mitigate. Individuals continuing to work after 67 must also coordinate tax payments and check eligibility for National Insurance old-age pensions.