Welcome to Part 2 of our multi-part series designed specifically for members of the State Universities Retirement System Retirement Savings Plan (SURS RSP) who are approaching retirement and want clear guidance on their options. This guide will help you make sense of your choices and confidently decide what to do with your account balance as you transition to retirement.
We introduced the investment options in the RSP in our previous article which can be found here: SURS Retirement Savings Plan Guide Part 1. To recap, RSP participants can elect one of the following options with their RSP balance when they retire:
The Secure Income Portfolio (SIP)
A traditional annuity
A lump-sum distribution of funds to invest in the market
In Part 2, we will help you answer this question: How does the SIP compare to the other options in the RSP? We will do this by looking at the following:
The SIP vs. a traditional annuity
The SIP vs. a lump-sum distribution and investing it in the market
Please note that you may choose a combination of the options. For example, moving 50% of your balance to and activating the SIP followed by taking a lump-sum of the other 50% would be possible while maintaining the retiree health insurance benefit. For more information on health insurance as a SURS retiree, please check out our post on that here: Retiree Health Insurance Under SURS: An Explainer.
In this article, we focus on the most common scenarios by examining each option as if you were to allocate 100% of your RSP balance to it. While this overview addresses the primary choices faced by most participants, your personal situation may involve additional possibilities or unique considerations. For a comprehensive review of all your options and guidance tailored to your circumstances, we encourage you to schedule an individual consultation with us.
Who is this guide for?
This guide is tailored for those in the SURS RSP, which is a defined contribution plan. In a defined contribution plan, the amount you and your employer contribute is fixed, but your retirement benefit depends on the investment performance of your account. You are responsible for making decisions about how your balance is managed and ultimately distributed.
Who is this guide NOT for?
This guide does not apply to those in the SURS Traditional and Portable Plans, which are defined benefit plans. In a defined benefit plan, your retirement benefit is determined by a formula based on your salary and years of service, and you receive a guaranteed monthly payment in retirement. SURS manages the investments, and the State of Illinois bears the risk.
A Primer on Annuities
One option RSP participants have is to turn their RSP balance into a traditional annuity. A traditional annuity is a contract between you and an insurance company in which you make a one-time payment in return for a lifetime stream of income. Your initial payment is generally the balance of your RSP account at the time of annuitization. The amount of your income stream is largely dependent on two variables: your age and current annuity rates.
Example 1
Consider Tom, who is 60 years old, and Bob, who is 65. Both have a balance of $1,000,000 in their SURS RSP Plan. If they each choose to annuitize, Tom would receive $73,680 per year, while Bob would receive $81,480 per year. Although their account balances are the same, their annual payments differ because Bob, being five years older, has a shorter life expectancy. This allows the insurer to distribute his payments over a shorter period, resulting in larger annual payouts compared to Tom. (Principal Life Insurance Company, 2025)
In addition to age, the configuration of your annuity can also impact benefits. Here are other options that may impact your benefit amount:
Single-life – Payments last for your (the annuitant) lifetime only. After your death, payments stop.
Joint-life – Payments continue for the life of you as annuitant and your spouse. However, since this arrangement extends the possible period over which payments may be made — potentially covering two lifetimes, rather than one — the insurer spreads the total benefit over a longer time. This results in lower monthly payments, just as the 60-year-old in our earlier example receives lower payments due to a longer expected payout period.
Period Certain add-on – This guarantees payments for a minimum number of years, even if the annuitant dies sooner. For example, a 10-year Period Certain added to a Single-Life annuity ensures payments to a beneficiary until the 10-year mark if you as annuitant dies before 10 years of payments. Because the possible payout window is extended, the monthly payment amount is reduced, much like the difference seen between our 60- and 65-year-old retirees, where a longer potential payment period means smaller monthly checks.
It’s important to understand when you die and the Period Certain has lapsed (if applicable), no further benefits are paid. There is no refund or balance to your heir.
Example 2
For example, if you annuitize $1 million and get hit by a bus the next day, the insurer keeps the entire amount.
Building on Example 1, let’s suppose Tom chooses the single-life annuity after retiring at age 60 and, unfortunately, passes away just five months into retirement. In this case, the insurer retains the entire remaining balance of Tom’s original $1,000,000 RSP, and all future payments cease immediately. No funds are paid out to his heirs, since single-life annuities guarantee payments only for the life of the annuitant.
This risk is important to keep in mind when considering your annuity options. This ensures the other annuitants that live to 100 also continue to get their payments. This is a major consideration and one of the primary reasons many people do not select this option, especially for those who want to leave a financial legacy to their loved ones, since your RSP is often one of your largest assets.
Comparing an Annuity to the Secure Income Plan
The SIP is designed to combine some benefits of an annuity with the flexibility of an investment account, which is discussed more in Part 1 of this series. In short, your SIP payments in retirement can increase if the market does well but will not decrease if the market does not. In addition, the balance of the funds stay invested and will pay out any remainder (if any) balance in your account after you pass away which is a stark contrast to a traditional annuity that keeps any leftover balance.
Unlike a traditional annuity, this option lets your remaining balance, if any, transfer to your beneficiaries after your death. Remember, there is no free lunch. This flexibility has a downside in that the SIP typically pays less than a traditional annuity in exchange for added flexibility and potential for growth.
Example 3
Imagine Sue, a 65-year-old employee, retiring on August 1, 2025, with an RSP balance of $1,000,000. If Sue selects a single-life annuity, she would receive annual payments of approximately $81,600 (Principal Life Insurance Company, 2025). This option provides higher yearly income, but leaves nothing for her heirs after her death. On the other hand, if Sue chooses the Secure Income Plan (SIP), her annual payments would be about $53,800, or 5.38% of her original balance (Alliance Bernstein, 2025). Any remaining funds after her death can be left to her beneficiaries. In addition, the SIP payments could increase with market performance.
This is a significant difference and requires thoughtful evaluation of your options before making a choice.
The SIP vs. taking a lump-sum distribution and investing it in the market
Another option is to choose not to annuitize or rollover your RSP funds at retirement into another qualified pre-tax account, such as an IRA. An advantage of rolling over might be to access a broader or alternative set of invest options. This option is the riskiest since you would be subjecting your retirement funds to the volatility of the market, but it may make sense for those with more capacity to absorb risk. For example, those with other sources of retirement income or significant other financial resources in comparison to their spending needs.
With higher risk comes the potential for higher reward. Funds in the SIP are locked into a pre-determined mix of 50% stock and 50% bond split. Adjusting the split between stocks and bonds is a powerful tool as you can tailor your portfolio to your current life stage and needs.
As you are considering this path, it is important to understand the trade-offs between risk and return. The stock market can be broadly split into 2 types of investments – stocks and bonds. Stocks are a riskier investment than bonds since the value of the stock is tied to the value of a company (unlimited upside with the potential for bankruptcy), while bonds are tied to a loan from a company or government (locked into a set interest rate). A balanced portfolio will have a mixture of both, with stocks providing the engine of growth and bonds offering lower risk with a lower potential return as a potential hedge against a prolonged stock market downturn.
Between the years of 1926 and 2024, a portfolio that was invested in 50% stocks and 50% bonds returned an average of around 8% (Shea, 2025). However, average returns can mask the risks. For example, Shea reported that the lowest annual return in that time frame was a loss of 15.41%. On a $1,000,000 balance, that represents a loss of $154,100! Further, the worst 5-year return over that same time period was a 2.33% annualized return. The timing of when you have good vs. bad years in investing matters.
To account for variations in stock market returns, a general rule of thumb is to spend about 4% of your portfolio each year, to allow for the growth of your portfolio to support any of the dips in the market. This 4% rule was first introduced by William Bengen, who calculated that someone with a portfolio invested in 50% large-cap stocks and 50% intermediate-term treasury notes (bonds), who rebalanced annually, could withdraw 4% of the balance in year one, and increase their withdrawal rate by inflation for at least 30 years. He reported that there was no historical market scenario where the balance would be depleted before year 30 (Bengen, 2004). It’s important to note that for Bengen, his goal is to have a balance of >$0, so even a scenario where he has $1 left after 30 years would be considered a “success”. It is up to each individual to determine what their goals are and consider the risks of the market as they develop their personal retirement plan.
This research was based on historical data, which means that we can reasonably expect similar results in the present, but there is no guarantee. However, Bengen reported that 4% was the lowest sustainable rate for 30 years, which means that there is a huge potential for upside that is not captured in this “4% rule”. When developing your retirement plan, it is important to have a plan for worst-case scenarios, but to also leave room for upside.
Example 4
Continuing with the same facts from Example 3, Sue is also considering taking a lump-sum distribution and investing it on her own. She wants to err on the side of caution in the beginning of retirement, so she relies on Bengen’s research, invests her portfolio 50% stocks and 50% bonds, and plans to withdraw 4% of her balance each year. Her $1,000,000 portfolio would provide her with $40,000 in year one and would increase with inflation. She would give up the guarantee of higher annual payments from Example 3 but would have the flexibility to manage her investments and withdrawal rate based on her needs.
Example 5
Imagine that Sue from Example 3 chooses to rollover her RSP into an IRA and is diagnosed with a terminal illness requiring extensive and costly medical care over the next 2–3 years. Faced with this challenge, Sue might choose to significantly reduce her portfolio risk to protect her savings from market volatility. By shifting a greater proportion of her investments into bonds, she would help to reduce the risk she is taking with her retirement funds against the possibility of a stock market downturn. This strategic move would allow her to draw income for her healthcare needs without the added anxiety of major losses just when her spending requirements surge. Sue’s priority in this scenario would be financial stability, ensuring that her portfolio can reliably cover her medical expenses during a difficult time.
Example 6
In contrast, consider another path Sue’s retirement might take. She lives well into her later years, and her lifestyle becomes more modest as she travels less and reduces discretionary spending. With decreased income needs, Sue finds herself in a fortunate position to focus on growing her remaining assets — not for herself, but as a legacy for her children and her preferred charitable organizations. In this case, Sue may opt to gradually increase the proportion of stocks, or growth-oriented investments, in her portfolio. Accepting more risk offers the potential for greater returns over time, which could substantially increase the value of her estate. Her strategy shifts from income generation to asset appreciation, guided by the goal of leaving a meaningful financial footprint for those she cares about most.
Conclusion
After reviewing the advantages and disadvantages of the SIP, we hope you have a much better understanding of this option, and the main points to consider as you make your decision.
Our series will conclude with our next article in which we will help you answer the question: Is the SIP right for me?
The SURS Retirement Savings Plan (RSP) can be a complicated retirement system to understand since there are so many options that are given to participants. If you or someone you know have questions about retiring under the SURS system, understanding the SURS RSP, or navigating retiree health insurance options, we are here to help. It would be our privilege to bring clarity and confidence to your decisions. Schedule a call with us today to get started!
Co-Authored by:
Jacob Kuebler, CFP®, EA
Timothy Lee, CFP®
Bibliography
Alliance Bernstein. (2025, August 6). SURS Blended Rates - Rolling Periods.
Principal Life Insurance Company. (2025, August 6). Illustrative Table of Annuity Premiums for SURS Rates as of July 1, 2025.
Shea, B. (2025, May 20). Returns since 1926 v2024.
Important Disclaimers
All figures and calculations are purely hypothetical, and simplified, to illustrate the high-level concepts of the RSP.
This material is independently authored by Bluestem Financial Advisors and is not affiliated with or endorsed by the State Universities Retirement System (SURS). For definitive plan rules and source materials, please refer to https://surs.org.
Bluestem Financial Advisors operates on a fee-only retainer model. Our fees are calculated based on our clients’ net worth. This presents an inherent conflict of interest as Bluestem would receive the highest fee if our clients in the RSP elected to take a lump-sum distribution, as surrendering their balance for the SIP or a traditional annuity removes it from their net worth.