All Is Not Well in Stockton

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sb10061547bu-001It didn’t come as a surprise when the California city of Stockton declared bankruptcy; city officials had been issuing warnings for quite some time.

Stockton is insolvent and has not been keeping up with payments towards its employees’ pension fund accounts. It is the city’s largest financial liability and, while the bankruptcy judge agreed the city is broke, he has not determined if the pension payments can be included in the negotiations. If the judge decides that payments to the pension fund can legally be reduced just like most outstanding debt in bankruptcy proceedings, city employees will potentially face lower pension benefits; if payments to the pension fund cannot be legally reduced, it means that all the city’s creditors, except the pension fund, will get pennies on the dollar and the city might never dig itself out of its hole. It’s a mess.

This is a cautionary tale for all of us, not just Stockton residents. Now that the facts are sinking in, Stockton’s city government employees are waking up to a new reality that the pensions they had expected might not be as promised. Many of the assumptions all of us have operated under for years, like that of the government being our safety net, are open to question.

We are probably at a tipping point where programs like defined benefits (pensions) and even Social Security, which were there for older generations including Baby Boomers, might not be there for younger age groups. It’s a wake-up call that there’s a strong chance you are going to have to rely on yourself, not the government, for your financial security. Now might be the time to investigate how best to create a safety net for yourself. The answers won’t be easy, but while they are being debated, try to start thinking about self-funding your own future.

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