Retirement Income: A Foundation With Four Legs

Includes: GNW, HUM, NHC, UNH, WELL
by: Regarded Solutions

When I review the articles that I have written it becomes clear that we have the basic foundation for a sound, secure, and relatively safe income stream from our investments that will fare better than those of us regular folks who "play it by ear," without a plan.

We also need to remember that our savings and investments are NOT the only leg to lean on during retirement. Combine that with several investments to make now in stocks like; Humana - HUM, UnitedHealth Group - UNH, National HealthCare - NHC, Sunrise Senior Living - SRZ, and Genworth Financial - GNW.

A Complete Retirement Plan to Implement Now

1) Investments

  • As you can tell from this review we have an investment plan in place that will give us income from our investments for as long as the companies pay dividends, and we hold the stocks.
  • We have an options strategy that when implemented such as this, we have even more opportunities to enhance our income.
  • The potential for capital appreciation is significant when the market responds positively, and by using options to hedge our positions (selling calls and buying puts), we can mitigate a considerable amount of risk in down markets (we cannot eliminate all risks).

2) Savings

  • Savings outside of our funds for investment are a vital part of a secure retirement. How else will we be certain to have enough of a safety net over the next 5 years?
  • This early article goes into detail and should be reviewed at this time of year just to make sure we are on track.
  • Once we have these ducks in a row, we can see how the next legs fit in.

3) Social Security and Medicare

  • Social Security is SAFE for now. I am not sure about the 30 somethings that are just starting out, but for those of us nearing or in retirement I strongly believe that outside of a few tweaks here and there, we can count on it.
  • Medicare is a different story and it is a mess. There will probably be significant cuts in benefits, rising premiums, higher co-pays, and who knows what else. It is imperative that you take action now to secure the best possible health care coverage while you are also getting Medicare. I happen to like Humana and United Healthcare for their insurance coverage and even for capital appreciation investments for the baby boom generation. Here is a link that could help with some Medicare Advantage Plans as well as Supplemental Insurance.
  • The two stocks I like are:

Humana: Price-$84.75/share, Dividend Yield- 1.20%, ESS Rating- Bullish

I am not a fan of the dividends with HUM, however for capital appreciation I feel they will be a major beneficiary of top and bottom line growth, from the new health plan laws going into effect now.

UnitedHealth Group: Price-$49.00/share, Dividend Yield- 1.40%, ESS Rating- Bullish

Obviously this dividend will not maximize our cash flow either, however UNH which is tied in to AARP, could be the largest beneficiary of top and bottom line growth from the new health care laws.

In both of these stocks I see a capital appreciation opportunity that has been born for our times in a sector which will always be needed. Separate from our core portfolio for retirement, I would consider adding some shares of one of these for significant future growth.

4) Long Term Care

  • The final leg of our retirement foundation is for Long Term Care. Too often neglected and pushed aside, until of course it happens to be too late. I guess we all believe that we will simply fall asleep at 103 and not wake up for our next day's tee time, right? Sadly it does not work that way for most of us. We should be prepared (and better yet, invested in this sector!).
  • The 3 stocks I happen to like are:

National HealthCare: Price-$41.94/share, Dividend Yield- 3.0%, ESS Rating- Neutral

They have underperformed but I believe that as this sector meets head on with baby boomer needs, they can turn their fortune of late around, plus a 3% dividend is not that awful.

Sunrise Senior Living: Price-$4.71/share, Dividend Yield- N/A, ESS Rating- Very Bullish

SRZ interests me because they have a very strong cash reserve position, they have cut their short and long term debt by 2/3 since 2008, lowered all of their liabilities by more than half since 2008 and have tripled "Net Tangible Assets" from 2008.

Maybe it is just me, but when companies clean up their balance sheets as much as SRZ has, it could mean that they want it to look really good for a potential buyer. Or, am I crazy? One analyst that covers it gives it a 12 month price target of $10.00/share, so that would be a double bagger right there. Perhaps it is just way too cheap in my opinion, for a sector that will very likely be growing rapidly as the boomers need a final place to hang their golf cap!

Genworth Financial: Price $6.26/share, Dividend Yield- N/A, ESS Rating- Neutral

I have mentioned that I am not a big fan of insurance companies, unless I feel we can make money from them. Truth be told, GNW has had a lousy 2011 reflected in its PPS, yet their projected earnings for 2012 is said to be around $1.30/share which would be about triple of what it was this year. My math has always been lousy but I think we might be looking at a 3 bagger in 12-18 months if I am not crazy, again.

My Opinion

Having a plan in place is a great place to start. Implementing the plan is the obvious next step, and the discipline to stick with it is apparent.

The four legs to a retirement foundation does not mean that we can't take a few risks, and measured out carefully, we could see some nice growth.

Not all investments MUST be dividend payers, especially if they are in sectors that we can see will be around and thrive down the road. If we use about 5% of our cash reserve for risk plays, why not take a look at a few companies (and their stock) that the boomers will need in the near and longer term?

* Please do not buy any stock or equity prior to doing your own research as well as defining what your individual investment goals are. Also please note that you must also evaluate your tolerance for risk as well. Do not buy or sell any stocks based on reading this or any suggestions without consulting a professional if you feel it is warranted.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.