If you work for the University of Illinois or one of the other Illinois public universities and participate in the Self Managed Plan (SMP) for retirement through the State Universities Retirement System (SURS), you should be aware that beginning September 1, 2020 your plan is now called the Retirement Savings Plan (RSP) with new features and benefits.
The Retirement Savings Plan (RSP) is a defined contribution plan that establishes an account into which your contributions and the employer’s (State of Illinois) contributions are placed. You decide how your account balance will be invested, selecting from a variety of mutual funds and variable annuities. You contribute 8% of your earnings on a before-tax basis. The state of Illinois also matches a portion of your contribution. If you had money invested in the Self-Managed Plan (SMP) with Fidelity or TIAA-CREF, those funds were moved to the Retirement Savings Plan (RSP) on September 1, 2020. The new record-keeper is Voya.
What are the benefits of the new Retirement Savings Plan?
If you do nothing, your investments are managed automatically and will be turned into guaranteed monthly retirement income when you reach age 65.
What are the downsides of the new Retirement Savings Plan?
For some individuals, the default investment mix may be too conservative as they age and may contain too much international stock for their risk/return profile. This may depend on factors such as your investments outside of the Retirement Savings Plan, your planned retirement age, and your spouse or partner’s investments including his or her eligibility for social security or a pension.
How are my funds invested?
The money in your RSP account is automatically invested in a portfolio called the Lifetime Income Strategy. The portfolio consists of a diverse mix of professionally managed stocks and bonds that adjusts its investments over time to become more conservative. This Lifetime Income Strategy functions like a target date fund. You choose the age you would like to retire and the portfolio reduces the amount of stock exposure to lower your investment risk as you get closer to retirement. Between ages 50 and 65 your investments are moved from the Lifetime Income Strategy to the Secure Income Portfolio.
What is the Secure Income Portfolio?
The Secure Income Portfolio (SIP) uses insurance contracts to guarantee your monthly retirement income. The guaranteed income amount is protected by insurance contracts and will never run out. The insurance contracts protect your income when the stock market tanks or if you outlive the investments in your Secure Income Portfolio. A benefit of the SIP is that your monthly income can increase if the value of your Secure Income Portfolio rises, while the value of your monthly income is protected during down markets.
When can I retire?
You will be defaulted to a retirement date at age 65 with 100% of your account balance on the path to generate guaranteed monthly income in retirement. To have a healthy retirement income after working for a state of Illinois university, you generally need to work 20 years or more. And, remember that you will likely not be eligible for social security.
What about retiree health insurance?
If you would like to participate in the state of Illinois health insurance program at retirement, at least 50% of your account balance must be converted to the Secure Income Portfolio.
How can I forecast my retirement income?
You can visit the SURS website and login. Select to manage your Retirement Savings Plan, then navigate to the Lifetime Income Strategy and the Alliance Bernstein site. On the SURS Lifetime Income Strategy page you will note a default retirement age of 65. There is also an estimated Secure Income Withdrawal Amount. This amount is in today’s dollars and provides an estimate of the annual amount you may receive in retirement.
What if my income projection is lower than I need it to be?
You have several options including retiring at a later age, changing your investment mix to more stocks which entails more risk, and consider whether you have income from investments outside of the Retirement Savings Plan. There is also a possibility that the stock and bond market could perform better than the assumptions in the projection.
What adjustments can I make to my Retirement Savings Plan?
You can change your retirement age to be between age 50 and 70.
You can move all or a portion of your investments out of the default Lifetime Income Strategy target date fund and choose to invest in a variety of low cost stock, bond, and real estate funds.
You can elect to move 0%, 50%, or 100% of your account to the Secure Income Portfolio to generate guaranteed monthly retirement income. Remember you must have at least 50% of your investments in the Secure Income Portfolio at retirement to be eligible for state of Illinois group health insurance.
What if I have questions about my retirement income and the Retirement Savings Plan?
You can call SURS at 1-800-613-9543 or speak with a financial advisor who is familiar with the plan.
Peter Newman of Peak Wealth Planning is a financial advisor based in Champaign, Illinois and is also a Retirement Savings Plan participant. He worked at the University of Illinois for more than 20 years and knows the details of the plan. He and his team can assist if you have questions.
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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 offers personalized concierge services to meet your wealth management needs, including financial planning, investment management, ESOP diversification, retirement income, insurance, and estate planning. As a fee-based financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states.