Tax Benefits for Retirees – Planning Ahead Before Retirement

Retirees are eligible for a wide range of benefits and tax reliefs, including various tax benefits on income and pensions. Becoming familiar with the key benefits is an important part of professional retirement planning.

The State of Israel grants a series of benefits and reliefs to retirees, individuals who have retired from employment (women from age 62 and men from age 67) and who, in most cases, rely primarily on the pension savings accumulated over their employment years, as well as on government pension benefits.

These benefits and reliefs apply to diverse areas of daily life, including public transportation fares, municipal tax (arnona) payments, and more.

A central and particularly significant component of this benefits package is tax relief for retirees, applicable to income, savings, deposits, and pension payments.

Income Tax at the Lowest Tax Bracket, Starting at Age 60

Income taxation in Israel is progressive, meaning that individuals with higher income pay a higher tax rate. Starting at age 60, Israeli citizens – men and women, salaried employees and self-employed individuals alike – are eligible for the lowest income tax bracket in the tax scale, at a rate of just 10%.

This tax benefit applies to all types of income, not only employment income.

Please note, this tax benefit is granted before the official retirement age and applies from age 60 for life.

Tax Benefits for Retirees: Full or Partial Tax Exemption on Pension Payments

Retirement and old-age pensions constitute the primary source of income for most retirees in Israel. Therefore, tax benefits related to these pensions are of significant value to every retiree.

• A 35% tax exemption applies to pension income, up to a monthly pension ceiling of NIS 7,200. This exemption also applies to survivors' pensions, in the event of death.
• A full tax exemption (100%) applies to disability or old-age benefits paid by the National Insurance Institute.
• A partial capital gains tax exemption for retirees starting at age 67, up to a ceiling of NIS 13,400.

Clearly, tax planning, as part of comprehensive retirement planning, is a substantial and highly important issue for anyone approaching retirement age.

It is, of course, advisable to remain attentive to tax considerations throughout one’s working life. However, as retirement approaches, tax benefits may have a significant, if not decisive, impact on a retiree’s standard of living.

The Pension Advisory Team at Oren Mizrach provides personalized retirement planning solutions for each client, with a focus on maximizing available tax benefits for retirees.