Dividendy
Dividends vs. Selling Shares: Which Route to Retirement Income Makes Sense
Key takeaways
- In terms of total return, dividends and selling shares are equivalent — what matters are taxes and psychology.
- Dividends are automatic and require no decision-making — many investors prefer this.
- Selling shares is tax-advantageous if the three-year time test has elapsed.
- Dividends are always taxed at 15%, regardless of holding period.
- A hybrid approach — dividends plus occasional share sales — combines the advantages of both.
Dividends and selling shares are mathematically equivalent ways to draw retirement income — but they differ in tax treatment, psychology, and practicality. The choice depends on your situation, tax horizon, and personal preference.
The mathematics: why they are equivalent
Imagine a fund priced at CZK 1,000 that pays a CZK 30 dividend. After the payment, the price falls to CZK 970. You achieve the same result by selling 3% of your holding: the remaining value stays at CZK 970, and you have CZK 30 in hand. The outcome is identical; the only difference is taxes and transaction costs.
The tax difference is significant
- Dividends: always taxed at 15% withholding tax. The time test does not apply.
- Selling shares: after three years of holding (the time test), gains from selling securities are exempt from income tax (for individuals in the Czech Republic).
- Selling shares is therefore tax-advantageous, but requires actively deciding how much to sell.
Tax details in the article ETF taxes in the Czech Republic. This is not tax advice.
Psychology matters
Many investors prefer dividends because they are automatic and passive — you do not need to decide what to sell or how much. Psychologically it is easier to "live off the yield" without the feeling that the portfolio is shrinking. Selling shares, by contrast, requires discipline and confidence that the portfolio will continue to grow despite withdrawals.
The hybrid approach
Many investors in the retirement phase combine both: a distributing ETF provides regular dividend income, and when more is needed, some shares are sold with the benefit of the time test. This approach is also discussed in the article on dividends in retirement.
FAQ
Are dividends or selling shares better for retirement income?
It depends on your tax horizon and preference. After the three-year time test, selling shares is more tax-efficient in the Czech Republic. Dividends are always taxed at 15%. Mathematically, they are otherwise equivalent.
Why do many people prefer dividends?
They are automatic and require no decisions about selling. Many investors find it psychologically easier to live off income than to sell off part of their portfolio — even though the mathematical result is the same.
What is the time test for shares and ETFs?
If an individual in the Czech Republic holds securities for at least three years, gains from their sale are exempt from income tax. The time test does not apply to dividends — those are always taxed.
Can I combine dividends and selling shares?
Yes, a hybrid approach is sensible. A distributing ETF pays regular dividends, and when you need extra funds you sell some shares — ideally after the time test has elapsed.