Updated: Feb 17
The SURS Retirement Savings Plan (SURS RSP), which was formerly known as the SURS Self Managed Plan (SURS SMP), is one of three pension options you may select as an employee in the SURS system. The primary benefit of the SURS self managed plan was that you were able to pick your mix of stock, bond, and other mutual funds in line with a risk and return profile that could grow your account and leave you with the decision of what to do with your money at retirement.
At retirement as a SURS SMP participant myself, I planned to review my account balance at age 55 or older and decide whether to buy an annuity and receive lifetime health insurance. Or, roll the money to an IRA and manage my own periodic withdrawals but forgo the health insurance. With the previous Self Managed Plan (SMP) – the way I had set my allocations – SURS did not change my stock, bond mix each year, or automatically move a portion of my money into a higher fee annuity account each year.
That has all changed with the SURS Retirement Savings Plan (SURS RSP).
In this article, I'm going to explain how the SURS Retirement Savings Plan has changed and how these changes will impact SURS members. I will share the pros and cons of the SURS Secure Income Portfolio as well as provide you with an alternative investment strategy of self selecting core funds. Lastly, I’ll provide you with an opportunity to benefit from my expertise and gain a complete financial picture for you and your spouse.
Asset allocation with the SURS RSP Lifetime Income Strategy
The new SURS RSP Lifetime Income Strategy by default steps down your retirement funds from 95% stocks at age 50 to 50% stocks at age 65 by increasing its allocation to bonds (fixed income securities) each year. It does this by moving 1/15th of your account each year into the Secure Income Portfolio. The Secure Income Portfolio is one-half stocks and one-half bonds. Within the stock allocation, 40% of the stocks are international and 60% are domestic stocks. Fixed income securities generally work well for preserving assets during a stock market downturn but may not keep up with inflation in today’s market environment.
SURS Secure Income Portfolio - Guaranteed Income with a Price Tag
The new SURS RSP automatically shifts 1/15th of your retirement funds each year from the Lifetime Income Strategy between ages 50 and 65 into a 1.18% annual fee Secure Income Portfolio that is invested in a 50% stock/50% bonds portfolio. The purpose of the Secure Income Portfolio is to provide insurance for participants to take guaranteed monthly withdrawals in retirement regardless of your retirement portfolio's actual value.
The benefit of purchasing guaranteed income with a little slice of your SURS RSP account each calendar quarter between age 50 and 65 is dollar cost averaging into different guaranteed withdrawal rates across the 15 year period. For a 50 year old, withdrawal rates have been running 3.4 to 4.8% during the past couple of years. These withdrawal rates (for the 60 quarters between age 50 and 65) will be blended at your retirement to reduce the risk of converting your entire account balance to an annuity at a single point in the future. Like most annuities, the Secure Income strategy promises lifetime income. In other words, you can’t run out of money before you die. And, if there are funds left in your account when you die, the Secure Income strategy includes a survivor benefit for your named beneficiary.
The downside of purchasing this income protection relatively early (between age 50 and 65) is that your retirement account balance might be lower at age 65 due to the higher fees associated with the income protection insurance. This could result in a reduced SURS RSP account value at age 65 when you begin receiving an annuity.
Assuming you have a long time horizon to invest (10 or more years), the trade off of dollar cost averaging your guaranteed withdrawal rates may not be worth the potential reduction in the value of your account. A lower SURS RSP balance means a lower monthly retirement income at age 65. I have spoken with SURS participants near retirement who were surprised at how low their expected monthly from the Secure Income Portfolio would be. On the other hand, a significant benefit of the Secure Income Portfolio is the potential for increases in monthly income unlike a regular annuity. If the value of your 50% bond/50% stock Secure Income portfolio increases each year after age 65, your monthly income could go up.
Set Your Own Asset Allocation Using Core Funds
With careful navigation of the SURS Voya website, you could opt out of the SURS Lifetime Income strategy and avoid the automatic shift to the SURS Secure Income Portfolio by placing your money in the SURS Core funds.
Several of the core funds are listed here:
US Core Bond Index Fund
Multi Sector Bond Fund
US Large Cap Equity Index Fund
US Small-Mid Cap Equity Index Fund
US REIT Index Fund
Non US Equity Index Fund
By moving your SURS RSP to lower cost core funds, you can avoid the higher fee Secure Income portfolio.
If you prefer an 80/20 or 60/40 mix of stocks and bonds, you can maintain a static asset allocation until you annuitize at your chosen retirement age. Be aware that if you take this approach you will be at risk for the asset allocation you set and the available annuity rate at the time you begin to draw income.
A Hybrid Approach
RSP participants could consider maintaining 50% of your Retirement Savings Plan in the SURS Lifetime Income Strategy and allow that portion of your money to move 1/15th each year into the corresponding Secure Income Portfolio purchasing the guaranteed income. And you could take the remaining 50% of your Retirement Savings Plan and allocate it to the core funds with a mix of stocks, bonds and real estate that is in line with your preferred investment strategy and risk tolerance.
Maintain Your Health Insurance
If you are a SURS RSP participant over age 55 with more than 20 years of service, you can convert your retirement account to guaranteed income and receive paid lifetime health insurance using one of the options below.
buy an annuity from Principal using 100% of your SURS RSP, or
shift 50% or more of your SURS RSP into the Secure Income portfolio, or
remain in the default strategy where 100% of your SURS RSP moves into the Secure Income portfolio.
Take Informed Action
Before deciding the best course of action for your SURS RSP participation, it’s a good idea to attend a SURS webinar on the Retirement Savings Plan. Participants may want to use the tools on the SURS website to forecast your retirement income and have a conversation with the folks at SURS and Alliance Bernstein before deciding on whether to participate 100%, 50%, or not at all, in the Secure Income Portfolio.
Need Professional Advice
If you need assistance allocating your core funds in the Retirement Savings Plan, Peak Wealth Planning is offering a $5,000 consultation to understand your complete financial picture including your savings outside of SURS, your spouse or partner’s situation, and your time horizon to retirement. Once we understand your full financial picture, we can advise you on whether to stay in the default Lifetime Income Strategy and Secure Income Portfolio or help you create an asset allocation by choosing the core funds appropriate to your personal risk tolerance and unique situation.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.