Savings are important at any age, for every man and woman, but as you approach retirement age, significant savings become especially important. There are a variety of pension savings that are intended for the long term and serve those who save at retirement age, and of course there is a pension law in Israel that applies to every employee in the State of Israel and requires making monthly deposits for pension insurance that is intended for retirement age. However, it is important to be well acquainted with the various options and the tax benefits provided for savings in the third age, including amendment 190.
Almost every man and woman knows that they need to save for the retirement phase, but nevertheless, for many people the area of pension savings seems far away and complex – one that they simply avoid engaging in. Some feel stressed when they talk about saving for retirement and some believe that it will just “be fine”. There are several prominent reasons why people avoid creating good savings for retirement, and sometimes it seems that this is such a distant stage that there is no point in pursuing it. However, most people will retire to discover that their pension savings do not allow for a sufficient monthly pension and that it was necessary to create additional investments and savings that would carry the accumulated savings to retirement age.
These are 8 reasons to raise retirement savings to the top of your priorities:
1. The pension may not be enough
Many Israelis still believe that their pension savings will allow them to receive a monthly pension allowance that will allow them to maintain the same standard of living to which they are accustomed. Unfortunately, this is not a safe assumption. A monthly pension allowance is a derivative of the pension savings accumulated throughout the years of work of the saver. Every month the saver and the employer deposited funds for the pension insurance and these produced returns, over the years until the employee’s retirement. Then the accumulated amount is spread out and distributed in the form of a monthly annuity for the rest of the employee’s life. The meaning of this is that the amount of monthly deposits, the age at which the insured started saving and his insurance sequence have a decisive effect on the amount of savings accumulated for retirement and the monthly allowance derived from this. Those who have not saved enough may find themselves with a small pension allowance that is not enough for the insured.
A monthly old-age allowance is added to the pension, but these are low amounts that are not sufficient.
2. We live longer
Thanks to medical advances, people are living longer than ever, and it’s not unrealistic to expect that your retirement may last 20 to 30 years. This means that you will need a significant and high amount of savings in order to be able to finance your lifestyle during such a long retirement period.
3. Saving can be easier than you think
Just as the deposits for your pension insurance are transferred every month automatically, so additional savings and investment avenues do not require you to spend precious time and too much fuss. All you have to do is choose your preferred savings channel for retirement, choose a savings and investment route and transfer a lump sum or open a standing order for regular monthly deposits. Reports will be sent to you from the company that manages the savings every quarter and you can actively keep up to date with what is happening in the savings on the website of the managing company, on other websites such as “The Mountain of Money” and “The Mountain of Insurance” or simply through your pension insurance agent. With a small step you can ensure the creation of significant savings for retirement age.
4. There are tax advantages
Everyone knows that a pension fund and executive insurance, which are given as a monthly allowance at retirement age, are exempt from paying tax, but did you know that there are other savings channels that grant tax benefits? The most prominent and significant of them is a regular provident fund. But we will expand on that later in the article.
5. Time works for you
By saving for retirement, you can reap the benefits of compound interest and generate profits both from the original amount you invest and from the interest paid on it and all the accumulated profits. The longer you save for a longer period of time, the more your money will work for you and the capital will grow.
6. Almost everyone can afford it
Saving a few hundred shekels a month will translate into significant sums of money at retirement age. Now reorganize your budget, so that you can devote a certain amount of your income to retirement savings. This is one of the smartest and most profitable investments you can make for yourself.
7. The future is unpredictable
No one knows what the future holds. We hope we can count on our careers and continued health, but life can throw us unexpected balls, like a layoff or, worse, a complex health condition. It’s smart to be proactive and start building your retirement plan while you still can.
8. You don’t want to burden your family
Preparing for retirement now can significantly increase the chances that you will remain independent in the future. One of the greatest gifts you can give your children is the freedom from the burden of having to worry about your financial situation in old age. Moreover, financial preparation may allow you to retire without worries and focus on the things you enjoy doing the most.
What is amendment 190 and how is it related to your retirement?
There are many tools to save and invest for retirement. One of them is amendment 190 to the Income Tax Ordinance. The amendment encourages saving for retirement and provides significant tax benefits to savers.
Amendment 190 allows you to get the best out of a provident fund and enjoy notable advantages such as full liquidity of savings funds, exemption from capital gains tax or reduced tax payment, and quick and simple withdrawal of funds.
Other savings tools involve paying capital gains tax on the sale of securities, receiving dividends and receiving interest on holding bonds. Thanks to Amendment 190, you will enjoy a tax exemption for all these events when the funds are invested in a provident fund, so you actually get to enjoy a higher profit potential.
The funds accumulated in a provident fund can be paid in a recognized annuity model at retirement age, just like a pension annuity, thereby increasing the monthly income and benefiting from a full tax exemption.
The costs you will pay for managing the provident fund are also extremely low. Buying and selling securities in a provident fund involves significantly lower costs than other investment and savings channels, and in addition, the management fees charged for deposits and accumulation are among the lowest in the market.
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