Welcome to Part 3 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. We will help you make sense of your choices and confidently decide what to do with your account balance as you transition to retirement.
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.
In Part 1, we introduced the investment options in the RSP. 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 explored how the SIP compares to the other options in the RSP. We looked at the following comparisons:
The SIP vs. a traditional annuity
The SIP vs. a lump-sum distribution and investing it in the market
At this point, choosing an option may feel overwhelming. This is understandable. The options presented under the RSP are complex and take considerable time and financial expertise to fully understand. On top of this, to make the financially optimal choice, you must correctly predict future economic conditions, your needs, and your own life expectancy! An impossible task.
Like many financial decisions, the only way to move forward is to weigh the factors you know to be true, then make the best decision possible based on the information that you do have. In this article, we will introduce a non-exhaustive list of factors that Bluestem prioritizes with clients who are deciding on what to do with their RSP balance. We will conclude with a summary of the pros and cons of each option. For a comprehensive review of all your options and guidance tailored to your circumstances, we encourage you to schedule an individual consultation with us here.
Factors that can Significantly Influence Your Decision
Legacy
Is it important for you to preserve your SURS RSP account balance to leave a gift to family, friends, or charity after you pass away?
YES - This may weigh towards a lump-sum distribution or the SIP as a traditional annuity does not allow for beneficiaries to inherit assets.
NO - This may weigh heavily towards the annuity as the guaranteed income will be highest under this option, allowing you and/or your spouse to enjoy maximized additional income in retirement.
Other Retirement Income Sources
Do you have other reliable streams of income in retirement, such as Social Security, non-SURS pensions, rental, or business income?
YES - This may weigh towards a lump-sum distribution to invest in the market, as you have a higher capacity for risk in your financial plan.
NO - This may weigh towards the annuity or SIP to ensure regular, guaranteed income that is not subject to market fluctuations.
Other Savings / Investments
Do you have other savings or investments? This could include supplemental retirement savings such as 403bs, IRAs, Roth IRAs.
YES - This may weigh towards taking the annuity. The higher annuity income stream could reduce the need to draw income from these other assets, which in turn may allow you to use those other savings vehicles for supplemental spending needs and/or asset preservation for legacy goals.
NO - This may weigh towards the SIP. You might consider using the SIP for 50% or more of your Lifetime Income Strategy (LIS) to create stable, lifetime income. The remaining balance can stay invested in LIS or Core Funds to allow for periodic withdrawals as needed.
Health Insurance
Is it important for you to have health insurance premiums subsidized by the State of Illinois after retirement?
YES - This may weigh towards taking either the SIP or annuity to maintain eligibility for subsidized health insurance. This would be especially important if you were planning to retire before age 65, which is the age of eligibility for Medicare.
NO - This does not necessarily mean you should not take either the annuity or SIP, but it does open the possibility of making other choices within your SURS RSP account.
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.
Pros and Cons of the RSP Distribution Options
Pros of the SIP
Has the potential to leave assets to heirs.
Health insurance is subsidized by the state.
Guaranteed annual payments.
High-watermark benefit allows for annual payments to increase but and ensures they will never decrease.
Cons of the SIP
Participant pays a fee of 1.17% on the invested funds (SURS, 2025).
Annual payments will initially be lower than the Traditional Annuity. (Principal Life Insurance Company, 2025) (Alliance Bernstein, 2025).
Participants are locked into a 50% bonds and 50% stocks allocation which does not allow for adjustment as your needs evolve.
Assets remaining at death are not guaranteed and are based on market performance.
Pros of the Traditional Annuity
Payments are guaranteed.
Offers the highest initial guaranteed payment out of all three options.
Health insurance is subsidized by the state.
Cons of the Traditional Annuity
Payments do not have the ability to increase, reducing the purchasing power of your benefit as inflation increases.
There will not be any assets left at death to pass on to heirs.
Your payments are managed by an independent insurance company and subject to financial risks of that company. See more about the Illinois Insurance Guaranty at https://www.iigf.org/.
Pros of the Lump-sum Distribution
Ownership of the funds allow for large distributions not subject to an annual limit (e.g., to purchase a second house, to give away, to pay for kids/grandkids to go to college).
Flexibility to adjust investments based on needs and goals.
Potential for assets to grow while providing a stable source of income.
Based on the 4% rule, your annual benefit will increase with inflation (Bengen, 2004).
Cons of the Lump-sum Distribution
There are no guarantees with this option. All risk is retained by the participant.
No health insurance benefit.
Based on the 4% rule, annual income will be the lowest with this option.
Summary Table to Compare the RSP Distribution Options
Conclusion
Bluestem does not have a default recommendation for SURS RSP participants. No two retirement plans are the same; every person will have different priorities. Generally, the more flexible your plan is, the better you can adjust to meet life’s evolving needs. We see this commonly in retirement, where a newly retired individual will often experience higher levels of spending in the beginning (e.g., the travel and home renovations that were put off) and end (e.g., expensive end-of-life care), but a lower level of spending in between (e.g., getting too old to travel and participate in the same hobbies as before, but still healthy enough to not need to pay for extra care). This simple example can help illustrate the benefit of a plan that allows for higher income when called for, with the option to reduce and save when it’s not needed.
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!
Important Disclaimers
All figures and calculations are purely hypothetical, and simplified, to illustrate the high-level concepts of the RSP.
This content has not been reviewed by or endorsed by State Universities Retirement Systems - SURS. Bluestem Financial Advisors, LLC, is an independent advisory firm not affiliated with SURS.
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.
References
Alliance Bernstein. (2025, August 6). SURS Blended Rates - Rolling Periods.
Bengen, W. (2004). Determining Withdrawal Rates Using Historical Data. FPA Journal.
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.
SURS. (2025, July 10). SURS Investment Options. Retrieved from Investment Options: https://surs.org/wp-content/uploads/SURS-Investment-Options-Guide.pdf