How to Maximize Your Pension Savings and Avoid Unnecessary Taxes in Israel

When retiring in Israel, several key decisions can significantly increase the amount of money you retain during your retirement years. Experts recommend consulting a professional for personalized advice, but some general tips can help save tens of thousands of shekels.

First, retirees are entitled to a tax exemption basket of 976,000 shekels in 2026, which can be utilized through a "rights fixation" process. This process must be completed within 90 days and involves choosing between a tax exemption on monthly pension payments or a one-time lump sum withdrawal. Those who previously withdrew severance pay may have a reduced exemption. The process can be applied retroactively for up to six years, and sometimes delaying pension receipt can exclude older withdrawals from affecting the exemption. A common mistake is being unaware of this process and paying unnecessary monthly taxes on pension income.

Second, capital gains tax on securities is not always fixed at 25%. Individuals aged 60 and over with annual income below 193,000 shekels may qualify for reduced rates between 10% and 20% by filing an annual tax return. Additionally, "Amendment 190" allows transferring liquid funds to a provident fund, where gains are taxed at a nominal 15% instead of a real 25%, beneficial especially during low inflation periods. Investment funds remain the most tax-efficient tool. Before liquidating investments in retirement, it is advisable to consider all income sources and offset any past losses against gains to reduce taxes.

Third, retirees must decide between a higher monthly pension or greater financial protection for spouses and heirs. This is a zero-sum choice: more guaranteed months for beneficiaries after death or a higher monthly pension now. Those living alone should be cautious about waiving the guaranteed period, as early death could result in leftover funds being absorbed by the pension fund rather than passed on.

The professional recommendation is to select the maximum guaranteed period of 240 months (20 years). If the retiree dies during this period, the remaining balance is calculated at current value and paid as a lump sum to the family. These decisions critically affect monthly pension amounts and inheritance.

These guidelines aim to help retirees optimize their pension benefits and minimize tax liabilities, ensuring greater financial security in retirement.