The expert explains: Is 2 million shekels enough for retirement?

The central question in retirement is not whether the money will be there, but whether it will be enough for the desired standard of living, says Ela Alkalay, Chair of IBI Mutual Funds. According to her, it is impossible to predict the cost of living or future needs, so it is important to start saving early and maintain savings continuity. Alkalay warns especially against the risk of self-employed individuals reaching retirement age without sufficient savings or an asset that will serve as a financial anchor.

Trust in the Pension System

Ela Alkalay, today we will benefit from your experience in the Israeli capital market to talk about pensions. Can we rely on our pension?

"As long as you trust the State of Israel, our pensions will likely be here too. Reforms such as the Mandatory Pension Law and the Bachar Reform in 2004-2008 created a regulatory environment that allowed institutional investors to thrive. Our pensions are currently managed by large and stable entities. There is a high level of transparency thanks to the Gemel Net website and supervision by the Capital Market, Insurance and Savings Authority. About 10 billion shekels are added to the general pension portfolio in Israel every month. In most of the world, there is no mandatory pension, so the mechanism in Israel is very healthy and stable."

The Rule of Thumb

Is there a rule of thumb for how much money is required in retirement? For example, 2-3 million shekels to receive a pension of about 10,000 shekels per month.

"There is a belief that at retirement we will consume less, and therefore 75% of current disposable income is enough. But in an era where pensioners travel and want to live in the heart of Tel Aviv, this is not always true. Most 40-year-olds today will likely live well beyond age 80. There are many variables of uncertainty, which leaves a big question mark."

Lessons from the Slice Affair

Our trust in the regulator has cracked in light of the Slice affair, in which about 900 million shekels disappeared. Slice was licensed to manage personal pension funds, but people were enticed to transfer savings to risky channels.

"The principle behind Slice was good — to allow more variety. But the incentive structure of insurance agents got out of control. Agents were compensated for transferring clients between companies. Instead of working with qualified investors, they turned to people without financial education who needed loans. They harmed people who it is a crime to harm."

The Self-Employed Challenge

Despite the 2017 law, many self-employed individuals still do not save for retirement or save low amounts. In 2024, there were only about 158,000 active pension accounts compared to 587,000 self-employed in Israel.

"About half of the self-employed I meet do not save for retirement. Even those who do, accumulate low amounts," says financial planner Moran Levy. "There is an illusion that 'next year I will succeed and buy an apartment.' But a pension is saving by the teaspoon. Sometimes I meet people in their 50s who realize the depth of the pit they are heading into. They have to continue working until age 70-80 to make ends meet. They say: 'I don't want to lean on the children,' but sometimes there is no choice."

An Anchor in Real Estate

"If we have no sources of income other than the pension, and it is unclear what the cost of living will be, this anchor — having a place to live — is critical. If I have to pay rent from my pension, I might be left with very little. The State of Israel needs to rethink how it develops the real estate market for this population layer. For young people, the thought that it is worth having an anchor in the form of an apartment is not far-fetched; it is about financial stability."