Israelis Weigh Pension Payouts Alongside Salaries

Many Israelis continue working past retirement age, either to stay active or to maintain their standard of living. Those with pension savings face a decision: start receiving pension payments while still employed, or wait for a larger monthly payout later. It is possible to receive both a salary and a pension concurrently, depending on the specific pension product's terms. The key question is whether this combination is financially beneficial, especially after taxes.

For example, a 67-year-old earning a gross salary of 15,000 shekels monthly could also receive a 8,000 shekel pension. This totals 23,000 shekels, but not all of it is necessarily taxable. By 2026, the maximum tax exemption for pension income is projected to be 5,422 shekels per month for those fully eligible. In this scenario, only 2,578 shekels of the 8,000 shekel pension would be added to taxable income before further adjustments, suggesting the combination might be more advantageous than it initially appears. However, the actual tax exemption depends on personal circumstances, such as past pension or severance payouts.

To optimize tax benefits, individuals can engage in a process called "fixing rights" with the Tax Authority to determine how their pension tax exemption will be utilized. Starting pension payments without arranging these tax benefits could lead to overpayment. Conversely, decisions about tax-exempt severance or retirement bonuses can impact the remaining exemption for monthly pension payments. Proper tax coordination is also necessary when salary and pension come from different sources to ensure deductions align with total income and relevant tax benefits.

The primary advantage of receiving a pension while working is the immediate increase in income, which can fund expenses, assist family, pay debts, or boost savings. However, delaying pension payments allows the funds to grow in savings for longer, potentially resulting in a higher monthly payout later. Individuals who are financially comfortable on their salary and don't need extra income immediately might benefit from waiting. Conversely, those needing funds now, or who prefer to invest their pension income, might opt to start receiving payments sooner. It's important to remember that delaying payments means forgoing monthly income during the waiting period, so a higher future pension isn't always the most beneficial option.

Ultimately, the decision hinges on when it is most appropriate to start receiving pension payments. This involves comparing the net income received now against the potential future pension amount after deferral, considering taxes, personal financial needs, and other income sources. For some, the immediate income boost is preferable, while for others, waiting proves more financially rewarding.