Informed Decisions are one of Ireland’s only remaining independent financial advice firms. We specialise in retirement & investment planning for successful individuals, so that our clients only have to retire once.
Retire successfully with Informed Decisions.
December 8, 2025
Not bad. Just often inefficient, inflexible, and taxed heavily.
The Income Investor’s Dilemma in Ireland
Many investors in their 50's and 60's want dependable and sustainable incomes from their investment assets, fair enough!
You may be wondering should you invest in Dividend Stocks or Distributing Funds in order to generate income - and it is a fair question.
The choice often falls between 'Dividend Stocks' and 'Distributing Funds' (both pay dividend income) or 'Total Return Stocks' and 'Accumulating Funds' (don't pay dividends, instead accumulate profits in the business or fund).
Key points (I hope!) you’ll take away:
• Why dividends feel attractive
• How Irish tax rules affect dividend income
• When bonds can support more stable withdrawals
• How total-return investing can offer control and flexibility
• Practical ways to build retirement income without chasing dividends purely for the sake of it!
In this piece I aim to walk through how dividends really work, how Irish tax treatment impacts, and the key differences between it and a total-return approach for your income plan.
And while we won't be going hugely deep into the weeds here today - it will hopefully help clarify a few things for you.
Dividend stocks and/or 'Distributing Funds' (which pay out the combined dividends of all companies held in the fund, instead of accumulating them), often look and sound like the obvious answer to generate income in retirement. And understandably so, given they both pay annual 'income' in the form of dividends. Instead of accumulating the dividends back into the business or fund, they pay part of profits to you as part owner of the business.
Total-return investing is the alternative to dividend investing. If one is investing in individual company stocks/shares - they would buy a stock that doesn't pay dividends. Berkshire Hathaway is a large and popular example of such a company. Oh, if you are into running you'll possibly own a pair of Brooks running shoes.....and given Brooks is a Berkshire company, good on you're for supporting it's many lovely shareholders, thanks!
And it is worth noting that a company like Berkshire, or indeed an 'Accumulating Fund' will often itself own shares of companies that do pay dividends - they simply reinvest and accumulate these dividends instead of paying out to shareholders of the stock or fund - if ya get me!
Total return investing via non-dividend-paying stocks (Berkshire etc.) and via 'Accumulating Funds' means you are NOT paid an annual (taxable) dividend, and you get to choose when and how to sell/draw income from the holding. This often provides control and flexibility, especially for retirement income planning.
Read our Blog on Accumulating or Distributing Investment Funds here
Many people believe dividends are a bonus, or a reward for being a loyal shareholder of a direct stock or of a 'distributing fund'.
And it's a cherry-on-top, a little something extra! The reality, a dividend is a company distributing part of the net profits of the company out to shareholders.
And there's no denying it; certainly no bad thing to be sent a cheque or receive a funds transfer into your bank or platform account in the form of dividends each quarter or year!
But dividend ultimately represent part of your investment 'gains'.
The value of the company has not magically grown.
Why dividends feel attractive:
• They feel like paydays
• They reduce the emotional barrier of selling units
• They provide the illusion of safety; the stock value might fall but you are still getting some income!
But here’s the key point
Dividends do not create extra wealth.
They only change the way you receive it.
Take Johnson & Johnson, which is highly regarded as one of the most reliable long-term dividend stocks (by many), pays 3% dividend per year, which it typically does.
If you own €100k of JNJ, you'll receive c€3k Gross (before tax) Dividend Income this year, given their c3% dividend.
Instead of that 3k remaining compounding in your portfolio/fund, it is kicked-out to you as taxable income.
That may or may not make sense for you, given your circumstances.
This is where things can change sharply, if held in non-pension accounts in particular. Revenue says. 'Dividend income is added to your other income. The Income Tax rate you pay depends on your total income and personal circumstances'.
Therefore Dividends received by an Irish investor are subject to;
• Income tax
• USC
• PRSI (in some cases)
For Distributing Funds, ETFs and Dividend-paying stocks held outside a pension, the comparison gets even more interesting.
Distributing ETFs and Funds pay out dividends that are taxed each year (under Exit Tax!) plus are (at time of writing Dec 2025) subject to Deemed Disposal every 8th anniversary.
Whereas accumulating ETFs reinvest dividends internally in the fund, and only then taxed (at time of writing Dec 2025) under Deemed Disposal every 8th anniversary.
Assume you receive €5,000 in dividends from an individual stock.
If you are a higher-rate taxpayer, your after-tax dividend income may be c€2,600 in that year, so c50% total tax on the income.
Plus you will pay CGT at 33% on gains if you sell units at a profit subsequently.
If you received that same €5,000 'dividend' via a Distributing ETF/Fund, it's subject to Exit Tax rules, not Income Tax rules!
This could potentially work out better for you depending on your Income tax rate! Exit Tax from Jan 2026 anyway will be 38%.
If the same stock or fund instead reinvested the dividends, you pay tax only when you sell.
Over decades, this difference can slow or accelerate compounding, which is one of the key drivers of long term growth of course.
This is why many global evidence-based advisers lean toward total return, not dividend chasing.
This is all the more-so if you don't necessarily want, need or benefit from generating dividend income from these investments!!
If withdrawals are planned and supported by sensible asset allocation, yes. It is how most evidence-based retirement plans work.
Total return is fairly straightforward.
You focus on the overall growth of your portfolio rather than the size of its dividend payments.
It might sound counter-intuative, to focus on overall growth if you are trying to generate income!? But it can be very effective, particularly if you have a choice of sources to draw income from; pension, rental and investment assets.
Why does this work for some investors;
• It protects and aids compounding
• It avoids forced income and taxable events
• It gives you control over when and what assets to sell to generate 'income'
When you need income, instead of relying on dividends, you decide to sell a portion of your stocks or portfolio.
This is no different to receiving a dividend in practical household finance terms. The economic effect is identical!
The key difference is control, plus it can be more tax efficient!
An investor with a €1m portfolio of a few funds, invested broadly in Global equity/Bonds/Cash wants €40,000 this year to subsidise living and trips!
A dividend-focused portfolio might produce say 2.5% or €25,000 in dividends and the investor must take whatever the market gives.
Depending on their situation, this will be taxed at c50%, so they net say €13k after tax.
A total-return investor chooses to sell units to produce the €40,000.
They take the right amount at the right time. They get to choose which fund(s) within the portfolio to sell to generate this income. They may or may not have a large % gain on that €40k, depending on what portion/fund they sell.
You are only taxed on the gains you achieved on that 40k, not on the €40k itself!
If there was a 10% gain on the €1m since inception, they are taking €40k out at a 10% (€4k gain)
They pay 38% (as of Jan 2026) of €4k, or €1,520 tax on the €40k.
This flexibility is powerful when planning a long-term retirement income!
A Practical Comparison for Irish Investors
Most Irish investors want predictable income with reasonable tax efficiency and strong long-term growth.
Depending on their own situation, this points to total return approach, not dividend chasing.
There are simple alternatives that work better for long-term planning and tax efficient investing.
The first one I would put forward is to work with a decent financial planner who can aid with the navigation of income-generation, not one who solely wants to flog you a product! Once you've done that, focus on these areas.........
Set a monthly or quarterly withdrawal from your portfolio or ARF.
This mimics a salary/dividend and increases peace of mind.
Hold
• short-term spending in cash
• medium-term income in bonds/equities
• long-term growth in equities
This supports you through market swings without locking you into dividend decisions and incomes
Irish pensions offer tax relief on contributions and a structured withdrawal system.
Often the most income-efficient euro you spend in retirement comes from your pension, if it is done smartly and in a considered manner.
Check out last week's Blog and Podcast to see how different household scenarios can benefit from drawing or not drawing pension income first!
We work with many professionals in their early to mid-50s.
They are often tired of their careers and want the option to step back and start 'The Next Chapter'!
Some ask the same question; 'Should I invest for dividends to replace my income?'
And the answer is usually; 'No!'
Not because dividends are bad - far from it.
But because there is often a more efficient and favourable approach.
Dividends can feel comforting, but comfort is not the same as effectiveness.
When you step back and look at the numbers, the tax rules, and the long-term impact, dividends often fall short for Irish investors who want reliable income in their 50s and beyond. Total-return investing can offer control, income and long-term growth of assets.
Indeed, there is a case for a blend of both if the situation suggests so.
If you want income that supports your plans rather than restricts them, focus on retirement income planning strategies that protect compounding and give you choice over when and how you draw from your assets.
The right approach can turn uncertainty into clarity and the freedom to just go and enjoy life, which is what we all want!!
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The articles, blogs and podcasts are not investment advice. They do not take account of your individual circumstances, including your knowledge and experience and attitude to risk. Informed Decisions can’t be held responsible for the consequences if you pursue a course of action based on the information we share
No. Accumulating ETFs reinvest returns internally and often accelerate compounding.
Informed Decisions are one of Ireland’s only remaining independent financial advice firms. We specialise in retirement & investment planning for successful individuals, so that our clients only have to retire once.
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