A while ago, I posted about the insurance in your pension, discussing how much insurance you’re already paying for, and therefore do not need to purchase. In this post I plan to review the common misconceptions that people have about insurance and what is and is not necessary to buy in addition to the insurance in your pension:
Life insurance: Before I even discuss how much life insurance you need, one thing must be made clear. Life insurance allows the insured to take care of his dependents in the case of his or her demise: no dependents no need for life insurance. If you have no children, parent, spouse, sibling etc. that would suffer financially in the event of your death, there is no need for insurance. If you set up your pension correctly, you should have your spouse getting 60% of your salary and each child getting 20% until age 21 or 18. You only need to purchase additional life insurance if this will not be enough. Similarly, if you do not make a full time salary (for example, a housewife), then you would need to get life insurance. I want to stress this, because most people think the opposite is true. If Dad makes the bucks and Mom stays at home with the kids – Dad doesn’t need additional life insurance but Mom does.
When you buy life insurance, you usually buy a set amount (ie 500,000) that the beneficiaries will receive upon death. The best way to decide how much you need it to purchase insurance for the amount of money you’re going to need for 10 years. For example, let’s say a housewife allows the kids not to be in tzaharon (saving 2,000 a month) and watches the kids while the husband is at work and prepares dinner (another 5,000 a month). This means that you’d need 7,000 x 12 x 10 = 840,000 to replace her in the event of death. I obviously oversimplified this, but as a general rule, writing out the cash flow you would need will help you determine how much you need to buy.
If a spouse works part time or only pays in a pension from some of his salary, then insurance should be bought to cover the rest. For example, let’s say I make 10,000 but only pay a pension on 6,000 (the rest is a bonus that I get every month). Or let’s say I only work a 60% job and earn 6,000. Either way, I’d need to get additional insurance for 4,000 x 12 x 10 = 600,000.
Disability: Your insurance can cover up to 75% of your salary, which is probably enough to get by. Like life insurance, your pension should cover this if you set it up right, and like life insurance, it is the stay at home spouse who will need an arrangement made to cover her in the case of disability. When setting this up in your pension it is called nechut (נכות). When purchasing it on your own it is called ovdan kosher avodah (it is also called that if you have bituach menhalim). Usually, this insurance only kicks in after three months, so you should still have three months expenses put away in case something happens.
In my next post I’ll cover probably the most important insurance you don’t have, seudi, and the much less useful that too many Israelis are sold, teunot ishiyot.
A few weeks ago, I posted up a link to a polldaddy poll I created asking people about different billing companies in Israel. Despite my best efforts including 25 linkedin groups and a front page spot on Janglo, I only got 13 responses. Nonetheless, 14 is better than 0 and I actually found the results to be surprising – so without further ado.
5 of the 14 responses were from people who worked with Sveram. The reviews were mostly lukewarm to cold. While Sveram pays on time and is easy to use, there seem to be issues with customer service.
4 of the 14 responses were for Yeul Sachir. 2 people loved them, one was lukewarm and one hated them. Yeul Sachir is the most Anglo friendly, but some have issues with being paid correctly.
4 of the 14 responses were for Taxpay. This was a shock to me; I didn’t know many Anglos used Taxpay, but according to these responses, they do and they love it. Taxpay had the best feedback with the only criticism being that one person though the system was a bit complicated.
1 of the 14 responses was for Atzmai Sachir giving it a lukewarm to positive review and not much detail.
A while ago, I published a post about billing companies and freelancing in Israel. Since publishing this post, I have received dozens of e-mails asking me which service I preferred. Since I only worked with one company, I clearly cannot give any personal recommendations and opinions about all the companies.
If you worked with any billing company, or know someone who has, please fill out or ask him/her to fill out the poll at this site (http://jonnydegani.polldaddy.com/s/billing-company). If you worked with more than one company, please fill it out once for each company. I will publish the results and analysis next week.
Some introduction: Until the mid 90′s, Israeli pension plans were defined benefits plans, where one would pay into the pension plan based on his or her salary, and would receive an annuity (monthly amount received) upon retirement as well as a certain level of insurance. The amount of the monthly annuity was based on the amount of years paid into the pension and the last salary received by the employee (or in some cases, your average salary). Back then it was easy to choose a pension; one would compare the benefits of the plans and pick the one he or she felt best suited his or her needs.
In the mid 90′s the investment companies complained to the Israeli government about having to take responsibility for their own work and successfully lobbied for a defined contributions system, a system where the annuity one gets upon retirement is based on how much money is in the fund. Okay, now in English. The money I deposit into my pension fund is invested for me. When I begin to retire, the pension fund manager looks at how much is in my fund and based on that (and a few other factors) decides how much I get as an annuity (if you’re wondering, you can get some as a lump sum, but that just affects the amount you’ll get for an annuity afterwards.)
There are five types of Pension Plans
(1) – קרן פנסיה מקיפה חדשה – also called זכאיות
קרנות חדשות are the most common type of pension fund and will be the major focus of this series. קרנות חדשות are defined contributions plans that also include some level of life and disability insurance, earning them the label as a comprehensive (מקיפה) retirement plan. These funds are entitled (זכאי) to invest up to 30% of the assets in government subsidized bonds that pay a dividend of 4.86%. Due to the government subsidy included in the fund, workers may only invest up to 20.5% times twice the average wage into these funds each month. Any additional money set aside for retirement must be invested in one of the following funds.
(2) – קרן פנסיה כללית
קרנות כלליות pension fund that do not include any insurance and is not entitled to government subsidized bonds. These are typically used by three groups (1) someone who wants to invest in a particular כללית fund and has no need for insurance and (2) upper middle class and wealthy individuals who make more than twice the average wage and therefore cannot put all of their money into חדשות and (3) people who want to put their money in a fund by themselves from money they earn other than the regular money put into ther pension (ie from commissions). In the past, people would also invest in these funds to avoid paying fees on deposits, although the new fee laws of 2013 made this mostly irrelevant (see the upcoming post about fees)
(3) – ביטוח מנהלים
ביטוח מנהלים, manager’s insurance, is an alternative arrangement where money is put aside for a salaried worker’s pension in a direct contract with an insurance company. Practically, this means that there is more room for variety when it comes to insurance and the money can be invested in a different way than the other קרנות פנסיה.
To understand the primary appeal ביטוח מנהלים, one must understand its most important feature in the past, a fixed מקדם המרה. The מקדם המרה is the number by which the pension is divided in order to figure out an annuity. For example, if my pension has one million shekels and I have a מקדם המרה or 200, I’ll get an annuity of ₪ 5,000 a month. If it is 250, I’d get a pension of ₪ 4,000 a month. In a regular קרן פנסיה, the מקדם is set upon one’s entering retirement and is based on the life expectancy of the worker, his or her spouse and the interest rate. ביטוח מנהלים offered a fixed מקדם המרה where one did not have to worry about the rise in life expectancy. Unfortunately, in order to do this, many insurance agents used predatory marketing to convince people to pay five or six times the fee they would pay for a similar קרן פנסיה in order to avoid a rise in life expectancy that has been deemed unrealistic by mainstream science. Thank God, the government passed a law banning the sale of ביטוח מנהלים with a fixed מקדם המרה as of 2013, while also slashing the ridiculous amount that ביטוח מנהלים was charging in fees (see the upcoming post about fees). Practically this turned ביטוח מנהלים into an alternative to קרנות פנסיה with only slightly higher fees, although more variety when it comes to insurance and more flexible bequeathing rights.
(4) – קרן פנסיה ותיקות
These are the old defined benefits pensions from before 1995. Either you’re already signed up for this or you’re never going to be. Like the current חדשות and כלליות, some had insurance and others did not. Also, about half of the ותיקות were on the verge of bankruptcy and had to be bailed out by the government in 2003. Those companies that were bailed out were done so with the agreement that they must pay less to their clients than had been promised during all the years that the clients paid into the fund. If you have an elderly Israeli relative complaining about the government screwing him out of his pension, this is what he’s talking about.
(5) – קרן פנסיה תקציבית
These are similar to ותיקות, only these are only for government and university employees. I’d tell you about all the perks they had, but it would probably make you cry with jealousy. Suffice it to say, people with these made out like bandits.
My primary series will only deal with the first three types of pension plans, as these are the only ones from which one can choose from today.
I recently updated my tax calculator. The latest version includes the new tax brackets and credits according to 2013.
The Israeli Tax Calculator allows you to check your paycheck and see that the correct taxes were deducted correctly. If too much money is being taken out for taxes or insurance, then you should demand back your money through a tax alignment (תאום מס) or an insurance alignment (תאום ביטוח לאומי). If you need to get money back through an alignment see this post for more details.
Note: While the amount for insurance should match your paycheck perfectly, the amount you pay for taxes may not. There are other factors besides the ones mentioned in this spreadsheet that can affect the amount of taxes you pay (how much you got paid over the past 6 years, how often you get paid.)
Use the guide as follows:
If you are paying less in taxes than what is calculated on the sheet: Find out what kind of benefits you are receiving and how to continue receiving them.
If you are paying more in taxes than what is calculated on the sheet: Odds are you need to do a tax alignment. Speak to your HR person and fix up your tax record and then file the appropriate paperwork at מס הכנסה.
As always, if you find any flaws in these excel sheets or have any ideas for improving them, please feel free to contact me.
Are there any financial tools you would like to see? Please feel free to either leave some ideas in the comments below or e-mail me at firstname.lastname@example.org
Next week I will begin fixing up this site in order to offer much more additional information about the financial system and the pension system in Israel. I will be redoing and expanding my series on pensions, with a new comprehensive guide that will help the average Israeli find the right product. Consequentially, I will return posting weekly, at least.
Furthermore, I plan to find a good accountant and mortgage broker to expand a bit more about other important financial topics about which I am asked on a regular basis. I have some candidates in mind, but if there is someone you want to recommend, I’m all ears.
As I have stated before, my goal in studying to be licensed agent and pensions expert is to help as many Israelis as possible learn about their pensions, invest in the right products and get a good deal. The past few months have been very educational for me. First, I began studying for my final exam for my license. More importantly, I began my internship with a local insurance agent and pensions expert named Meir Toledano. Meir works with a very large variety of companies (most agents work with two or three) and therefore offers his customers a truly comprehensive look at the entire marketplace in order to find the product that is right for the customer, offers a good return and at a better price than the average person can get on his own.
If you have any questions about your pension – please feel free to contact me either by e-mail (email@example.com) or by phone at 052-790-6824.
If want to meet with me to choose or review your pension, at no cost whatsoever, please feel free to contact me.
Have a good day and a meaningful Omer,
I’ll be blunt. When it comes to investing, most people have no idea what the hell they’re doing. But it doesn’t have to be that way. Israel’s financial system has a fantastic system in place in order to help people invest safely and wisely. And the best part is that quality, objective financial advice is usually free.
Before you need to invest, you need to know why you are investing. Investing in order to save for a down payment on a mortgage is not the same as investing in order to preserve the value of money, nor is it the same as investing for retirement. Each of theses goals has a specific rationale behind it that impacts the risk one is willing to take, the amount of investment and the oversight required.
Once you know why you are investing and how much you are looking to invest, the next step is to find someone to help guide your investments. In Israel, the person to look for is a yoetz hashkaot, a certified investment advisor. This is not the same as a meshavek hashkaot, someone licensed to sell investments. Only a yoetz hashkaot is entirely objective, a term with significant legal ramifications. Buying investments from a meshavek hashkaot is like buying a second hand car and relying on the car salesman for a fair assessment. I am not saying that the meshavek hashkaot is lying, but his goal is to sell you the best financial option that he has to offer, not necessarily the best financial option from among all the options available.
Finding a yoetz hashkaot is easier than you think; just go to your bank and ask for one. Speaking with your yoetz hashkaot at the bank and receiving his advice an analysis is free, although the bank does take a commission of 0.4% – 0.7% on buying and maintaining some investments. Some banks do not offer investment counseling unless you have a lot of money. If you have a bank like this, I suggest speaking with the manager or telling your banker to #&@% off; many banks offer free advice, regardless of how much money is being invested. I bank at Mercantile, and I received free investment counseling even though I began with only NIS 7,000 (I am not sure if the policy of offering and limiting investment counseling depends on the bank or the specific branch.)
Alternatively, you can look for a private yoetz hashkaot who will take a different commission (or maybe just a fee for his advice and analysis) and will do the buying and selling of investments for you or show you how to do it yourself. If your Hebrew isn’t that great and your bank doesn’t have someone who can speak English, it may be worthwhile to find a yoetz hashkaot who speaks English. Also, if you’re not comfortable with your bank’s yoetz, you should find a private one. Just make sure that the person you find is a yoetz hashkaot, not a meshavek hashkaot.
Once you know why you’re investing and you have a yoetz hashkaot, you’re almost ready to go. The yoetz will begin by explaining his liability to you and then give you some simulations to test how you feel about risk. In most cases, your yoetz will take a few minutes to talk you out of investing in the currency market and begin to direct you to mutual funds (as a Dave Ramsey fan, I appreciate this). Depending on your adversity to risk, the yoetz will find a few funds that match your preference. Finally, you’ll compare funds by discussing the risk, the sharpe, and fees.
A good yoetz hashkaot is not just someone who can give you good advice, but is also someone who holds your hand and explains everything to you clearly so that you can make a decision. Let me say that again – so that you can make a decision, not him. Don’t invest anything if your not 100% comfortable with the decision.
What has your experience been investing in Israel? Is there a bank or yoetz hashkaot that you recommend?
One of the major financial perks of being an American Oleh is eligibility for Social Security. In addition to the money you can get from bituach leumi (~₪2,000) and your keren pensia (depending on what you put in) Social Security entitles you to an additional payment upon retirement of anywhere between ~$250 and ~$2,500 a month. Also, in the unfortunate event of your passing, your spouse (even if he or she is not American) would continue to receive the payment until his or her death. It’s a huge benefit worth having and it is worthwhile to make sure you are eligible for this benefit.
In order to be eligible to work for Social Security, an American citizen needs to pay in to Social Security enough to earn 40 credits or quarters. To earn a quarter, one must pay Social Security taxes (FICA, which is 15.3%) on wages earned on $1,130 of income (the amount changes every year in accordance with the national average wage – so it was less in the past and will be more in the future). You can earn up to 4 quarters a year by paying Social Security taxes on $4,520. To be clear, even though these are called quarters, you do not have to earn $1,130 during every 3 months, the amount can be spread however you earn money during the course of a calendar year. For example, if you have a summer job where you earned $3,800, you would earn three quarters, even though you only worked 2 months. You can check how many quarters you have on the website for Social Security by clicking here (http://www.ssa.gov/mystatement/).
It is very common for olim who made aliyah in their 20’s and early 30’s to find that they worked just below the line of 40 quarters and that they are therefore ineligible for Social Security. But if an oleh finds out about this in advance, he or she can take the necessary steps to ensure that he or she receives this benefit. As a rule, Israelis do not pay into Social Security unless they work for an American company or are self employed.
There are four ways to pay into Social Security while working in Israel:
2) Work for an American business (and pay American taxes including FICA). Ask a friend or relative in the states if you can do some seasonal work for them in order to earn your few remaining quarters.
3) Receive payment as sachar sofrim for a one time event. You’ll have to do a te’um mas (https://www.misim.gov.il/shteummas) and also a te’um bituach leumi (http://www.btl.gov.il/Insurance/Teum/HafakatHishur/Pages/default.aspx), but it counts as if you are an atzmai (and you pay FICA on it.) Not everyone likes to pay this way. I asked the people in my billing department to pay an Israeli supplier this way once and they were not happy.
4) You can try to pay taxes on your billing company profit. While one accountant with whom I spoke said this is possible (he admitted it would raise a red flag, but said it could be fought successfully), two others said that this possibility is entirely out of the question. One accountant told me “people go to billing companies in order to avoid paying Social Security. You can’t just pay when it’s convenient for you, claiming you’re independent, and then claim you’re no longer independent when it’s not convenient for you. Either she’s pregnant or she isn’t.”
As a final note, don’t try to commit fraud. If you open a tik just to pay yourself the minimum and get your 40 quarters, Social Security will find out. They actually have an office in Jerusalem whose sole purpose is to look for stuff like this.
Congrats, you’re considering starting your own full time business. Or maybe you’re just looking for a little money on the side. Sooner or later, someone is going to want a cheshbonit mas (tax receipt) and its time to stop working under the table; it’s time to register as a freelancer.
In Israel, you register as a freelancer or Over Atzmai (hereinafter OA) as either an osek patur or osek murshe. An osek patur earns less than NIS 76,884 and does not charge VAT for his services. If an OA makes more than NIS 76,884, he or she registers as an osek murshe. An osek murshe does charge VAT, but can reclaim VAT on business expenses. You can change from an osek patur to an osek murshe mid-year (when you come close to the 76,884 line you have to change your status) and once you are an osek murshe, you cannot be an osek patur again for at least two years. Finally, some professions such as accountants, lawyers and doctors may only register as an osek murshe. Regardless of what you choose, the process is the same: register at the tax authority, then mas hachnasah, and then bituach leumi Once you are registered, you have to file regular reports, prepay VAT every so often (for an osek murshe) and file an annual report.
Sounds difficult. Is there an easier way?
I know, the reason you became a freelancer was so you wouldn’t have to leave the couch and put on pants; going to so many government offices seems out of the question. Fear not, there is an alternative; you can register with a billing company. A billing company is a company that hires you as a worker. You work as a freelancer, the company does your billing and the company takes a small cut of your revenue and pays you as a worker. Since you are working under the guise of another company, you pay both the employer and employee side of all taxes and investments. Billing company freelancers (hereinafter BF) do not issue personal receipts, but send the money to the billing company and then ask their billing company to issue a receipt. All that the billing companies ask for in return is a small percentage of your revenue.
So which is right for your?
This is a very complicated question that gets to the heart of a very important matter – tax planning, or more honestly, tax avoidance. With tax rates as high as they are in Israel, saving money on your taxes can mean a world (or at least a paycheck) of difference.
1) Tax deductible expenses: Expenses are deductible for both OAs and BFs. The only difference is that OAs can also deduct some living expenses (a portion of arnona, electricity, water and va’ad bayit). In addition, OAs who are registered as an osek murshe and BFs can also receive back VAT on most expenses (for some such as a car and cell phone, you only get back 2/3 VAT. Car rental expenses receive no VAT at all). Click here for a full list of deductible expenses for an OA including VAT reimbursement rates.
2) Charging VAT: Despite popular belief, VAT is more of a tax on the seller than on the buyer. Like all taxes, it leaves a tax incidence, but in a world of many suppliers, VAT is really less of a 16% sales tax on the consumer and more of a ~14% tax on the supplier. An OA is allowed to not pay this tax as long as he is an osek patur. One he is an osek murshe, then he is in the same boat as the BF, who always charges VAT.
3) Bituach Leumi. OAs pay 9.82% on all salary below 60% of the average wage (meaning on the first 5,000 of revenue) and 16.23% on all revenue after that. BFs pay 3.95 on the first portion of revenue and 17.9% afterwards. This means that until ~ NIS 14,200 revenue BF’s pay less, but after 14,200 revenue, OAs pay less. All in all, the difference is not that significant until an OA starts making a lot of money. Another difference is that OAs pay a minimal amount of Bituach Leumi (NIS 212) every month, whether they receive income or not. BFs only pay bituach leumi during months they receive income.
4) Pension: Both BFs and OAs can put aside money for pensions. BFs can put aside up to 7.5% from the employee side (which means after tax money, but 35% of the deposit is a tax credit, 7.5% from the employer side (tax and bituach leumi exempt money), and up to 8.33% for pitzuyim (also, tax and bituach leumi exempt money). Note that the percentages from the employer side turn out to always be a bit less than listed above because these are percentages of your declared salary after you remove the deductible and refundable expenses, including the hishtalmut and pension (there is some complicated math in this). OAs can also put aside money for a pension, 5% from the employee side and 11% from the employer side (both have the same tax deductible policies mentioned for a BF).
5) Hishtalmut: One of the best ways to get some money past the tax man is by paying to a keren hsihtalmut. Typically, a keren hishtalmut, allows a worker to pay in 2.5% of his or her income, which the employer matches with 7.5%. Since BFs are paying both the employer and employee side, this means that they get to pass the 7.5% through tax free and bituach leumi free (Note: like pensions, percentages are a bit less than 2.5% and 7.5% because these are percentages of your declared salary after you remove the deductible and refundable expenses, including the hishtalmut and pension). Similarly, an OA may deposit 2.5% from the employee side, but only 4.5% from the employer side.
6) Social Security: This is where the OA’s have it rough. If you’re an American and registered as an OA. you’ll have to pay 15.3% of your revenue (before taxes, but after deductibles and bituach leumi) to the US government for social security. This is sometimes a good thing, because if you’re close to having 40 quarters, being an OA can push you over the edge, but it also means you’re going to be paying a lot of extra taxes. (For those interested, I plan to have a post discussing the social security issue at length in the near future). Again, this tax does not apply to BFs at all.
7) Billing company fees and accounting fees. Billing companies charge a certain percentage of your initial revenue as a fee for its services (the fess is paid on revenue after removing VAT, but before removing expenses.) This fee covers not only billing, but all Israeli accounting expenses you’ll need throughout the year including deductions, refunds and tax planning (fees range from 4% – 7% with a maximum fee per month). Similarly, an OA requires the services of an accountant. I know there are many OAs out there who choose to do it alone, this is often a huge mistake. The major perk in being an atzmai is the ability to utilize tax exemptions and if a worker is not using an accountant he or she risks either not taking advantages of all the tax advantages at his or her disposal or, conversely, committing fraud. The cost of an accountant is usually between NIS 1000 and 3,000 a year for preparing an annual report. Obviously this price varies depending on the extent of the time and service you need from your accountant.
Some final thoughts:
There are a variety of billing companies that can offer you their services (Yeul Sachir, Atzmai Sachir, Autotax, Cheshbonit Sachir, Sveram & Taxpay to name a few.) When choosing a billing company, it is important not only to look at the fee, but the level of customer service offered. I have heard good reviews from customers from Yeul Sachir. If you have worked with any of these companies, please share your experience in the comments below.
Many choose to be an OA because issuing a receipt from one’s own company looks more professional.
Despite what many say, and what I have been told in the past, it is not a big deal to close a tik. Just speak to your accountant and he or she will probably do the paperwork for you for a small fee.
This is the first time I am posting about this topic and I anticipate feedback and corrections. I’m going to be on vacation next week, so if there is any problem, please e-mail me and I’ll correct it when I come back. In the meantime, please enter any comments relevant to this topic below.
I recently found a great site for job searching. http://www.rapidjob.info allows users to search for the local industrial zone, find the companies that work there and then apply directly on the website of the individual company.
For example, if you are looking for work in Netanya, you’d click on שרון and then נתניה to see a list of al the companies that are located in the Netanya area. Afterwards, you’d look for the places with a דף משרות דרושים, click on the little page icon for the web site of the company and apply for the job. I am not sure how often the list of companies is updated, but the content I saw looks current.
Note: The companies listed are high-tech and bio tech companies, but such companies also have all sorts of non-scientific departments (finance, marketing etc) so its still work a look.
you click the picture below for clear instructions on how to use the site