Pension Dilemma at 60: Should You Start Early or Wait Until 67?
A financial analysis explores whether 60-year-old working Israelis should draw their pension immediately or wait until age 67, factoring in taxation, net income, and life expectancy.
A 60-year-old individual who continues to work and earn a high salary faces a complex financial decision regarding pension funds. Modern pension funds allow beneficiaries to start receiving a monthly pension from age 60 while continuing to work. Deciding whether to start early or wait until the official retirement age of 67 requires careful calculation of gross versus net amounts after taxes and life expectancy.
The Math: NIS 7,200 Now vs. NIS 9,100 at Age 67
Consider an employee who is offered a monthly pension of NIS 7,200 starting at age 60, or NIS 9,100 if they wait until age 67. The higher pension at age 67 results from continued contributions, investment returns over seven additional years, and a shorter expected payout period. Assuming the employee continues working until 67 with a gross salary of NIS 25,000, taking the pension early yields 84 monthly payments of NIS 7,200, totaling NIS 604,800 over seven years.
From age 67, the individual who waited receives an extra NIS 1,900 per month. Crossing the threshold to make up the difference of NIS 604,800 requires approximately 318 months—over 26 years. Based on this raw calculation, waiting only becomes mathematically profitable for those who live past 93.
The Tax Factor: Why Early Payouts Shrink
Raw calculations often overlook taxation. The tax exemption on pensions, known as a qualifying pension, begins at the statutory retirement age of 67 for men. Until then, pension income is fully taxable and added to active salary earnings. An employee earning NIS 25,000 is already in the 31% tax bracket, meaning almost the entire pension faces a 35% tax rate.
Out of a NIS 7,200 pension, approximately NIS 2,500 goes to income tax, leaving about NIS 4,700 net. Early pensions are also subject to National Insurance and health tax deductions until retirement age, reducing the net amount further.
Instead of NIS 604,800, an early retiree receives roughly NIS 393,000 net by age 67. At age 67, the equation shifts. If the employee stops working and has not previously withdrawn severance grants that reduce the exemption, the 57.5% exemption from the NIS 9,430 ceiling exempts NIS 5,422 of the pension, while tax credits practically neutralize the rest. Both the NIS 7,200 and NIS 9,100 pensions then arrive almost entirely intact, preserving the NIS 1,900 monthly gap.
Recovering NIS 393,000 at a rate of NIS 1,900 a month takes about 207 months—roughly 17 years. The break-even point drops from age 93 down to approximately age 84. This dynamic applies primarily to those who keep working; individuals who stop working entirely at age 60 pay significantly lower taxes on their pension since it becomes their sole source of income.
Life Expectancy and the Break-Even Point
According to the Central Bureau of Statistics, an Israeli man aged 65 lives on average for another 20 years, reaching approximately age 85. The post-tax break-even point of age 84 sits very close to this statistical average, meaning there is no clear-cut mathematical winner for the average male.
Differences emerge for those who live significantly longer or shorter than average. Individuals with strong health and family longevity past 90 benefit from waiting. Conversely, those with medical conditions affecting life expectancy benefit from taking the pension early. Spousal survivorship provisions must also be factored in if the pension continues after the member's death.
When Early Payout Makes Sense
For some, money at age 60 holds greater utility than money at age 85. Individuals paying off a hefty mortgage, supporting children, or transitioning to part-time work with a lower salary can benefit from early payouts. Using a pension to clear high-interest debt differs fundamentally from letting the funds sit idle in a checking account.
Policyholders can also opt for partial retirement in eligible products, activating a pension from a portion of their savings while letting the rest compound. National Insurance old-age benefits operate separately, remaining subject to an income test for working beneficiaries until age 70.
