Pension tips that will save you tens of thousands of shekels
Even if you are just about to retire, or have already retired, there are still ways you can maximize the monthly allowance you receive. On the order in which it is correct to withdraw from savings channels, how it is possible to hold two advanced training funds (Keren Hishtalmut), and also why if you are still working, you should not rush to withdraw your pension allowance. Advice ahead of retirement: part one.
If you have retired, or are planning to retire soon, there are several decisions that can significantly increase the amount that will remain in your hands throughout your retirement years. The advice below is general, and therefore it is recommended to consult on a case-by-case basis.
- Check the withdrawal order between savings channels
If you have several savings channels such as: pension, investment provident fund (Kupat Gemel Le-Hashkaa), savings policy, securities portfolio, and advanced training fund (Keren Hishtalmut), the order in which you withdraw the money is no less important than the amount itself. The guiding rule: maximize income and benefit from maximum tax breaks.
The rules vary between the different products, but the principle is quite simple: products that do not enjoy unique tax benefits upon withdrawal, such as savings policies or a managed portfolio, are better to withdraw first. In contrast, products that enjoy extensive exemptions should be left for last, in order to maximize the compound interest effect.
The most prominent example is the advanced training fund (Keren Hishtalmut), which is considered the most profitable investment instrument thanks to a full exemption from capital gains tax (up to the annual deposit ceiling set by law), the possibility to withdraw everything at once, and even transfer to heirs with a full tax exemption. Precisely because of this, it should be the last product you touch.
- It is possible to hold two advanced training funds
Precisely because of the advantages we described of the advanced training fund, it is important to know that you can hold two such funds. This is possible if you carry out some independent work alongside your work as an employee, even if it is a meager income of a few hundred shekels a year. Thus, you can hold a fund as an employee (with a deposit ceiling of up to 18.8 thousand shekels per year), if the workplace provides you with the benefit, and also as a self-employed person (with a deposit ceiling of 20.5 thousand shekels per year).
- Do not rush to withdraw an allowance if you continue to work
If you want to slow down towards retirement age, but also continue to work at a certain job scope, in most cases it will not be profitable for you to withdraw the pension allowance before the official retirement age — it is added to your salary and is subject to high tax. The real upgrade comes only from the official retirement age, when it is possible to perform "rights fixation" (Kibua Zchuyot) and receive the allowance tax-free, even while working — which significantly increases the net amount that reaches you at the end of the month.
