When energy giant Enron collapsed in a scandal of nonexistent profits and falsified accounting in 2002, Lois Black lost her job. Worse, the legal secretary at the company's Houston headquarters lost everything in her 401(k) retirement savings—almost $150,000. "I know, I know—it was dumb to put so much of my money into Enron stock," says Black, "but [CEO] Ken Lay sent us constant voice mails saying everything was great. We believed it."
Then 62, Black knew she didn't want another secretarial job. "I'd had my fill of lawyers younger than my kids walking right past the Xerox machine to ask me to copy a single sheet," she says. Yet her $18,000 severance—five months' salary—wouldn't go far, and she had only $50,000 in retirement savings. She applied for Social Security, but collecting before full retirement age meant a benefit of less than $1,000 a month. Black, who is divorced, needed a new source of income.
Betting that young girls would love elaborate tea parties as much as her granddaughter did, she launched Tea Parties To Go. She scoured thrift stores for clothing in tiny sizes so the partygoers could play dress-up. She found pintsize tables and chairs to set up at the birthday girl's home, which she'd decorate like a mini wedding reception. She placed ads in elementary-school directories. Total start-up cost: about $1,000.
The kids ate it up. Black grossed only $6,000 her first year (charging $250 a party) but, gradually, happy customers spread the word. By 2006 she was charging $400 and grossed $25,000.
Her retirement savings rose slowly from the $50,000 after Enron folded to $80,000 a year ago. The crash wiped away most of that gain, and the recession has cut her business by 30 percent. She's still saving, though, and isn't too worried. Debt-free and living well at 69, Black says her $260,000 home is her nest egg, then quickly adds, "I'm not retiring. I love what I do. I'd be happy doing it forever."
DUPED BY A "FRIEND"
On an April day eight years ago, Cora Lee Jckowski's husband, Sonny, called her at the Sandy, Utah, middle school where she worked as assistant principal. He had some shocking news. Their friend and financial adviser, Gregg Simper, had died in a shooting accident.
"Oh, my God," she said in a flash of intuition. "It's not an accident. He's taken my money and killed himself."
Over the years Jckowski, now 60, had invested about $80,000 with Simper, buying annuities for retirement. But certain things hadn't felt right. A well-connected local figure who always seemed to be rushing to the golf course, Simper never showed her any paperwork and evaded questions about the annuities' growth. But she brushed aside her doubts. After all, he was a professional.
It was a costly mistake. In a suicide note Simper confessed to stealing $2 million from clients. For Jckowski, the betrayal took an emotional toll. "Even more than the money, the evilness of what Gregg did was the hardest thing to deal with," she says. "I considered Gregg a friend, and I trusted him."
Left with about $40,000 in savings, Jckowski has squirreled away another $110,000 in the years since Simper's death—"I'm a saver," she says—at first putting everything in CDs, one of the safest investment options. But recently she entrusted her money to a financial adviser, being careful this time to lay out certain conditions.
"I told him the story," she recounts. "I said, 'Okay, here is the deal: If I think for one minute you're messing with my mind and my money, I will see to it that you're hung on a nail.'
"He walks lightly around me," she adds. "I get lots of paperwork from him, and I call whenever I damn well want to."
CONNED BY WORLDCOM
Months after WorldCom's collapse had snatched 80 percent of his retirement savings—a loss of about $250,000—Stephen Vivien was still fuming. He had marveled at his employer's growth into the nation's second-largest long-distance phone company, and he proudly used most of his 401(k) plan to buy the firm's shares. "Many WorldCom employees, like me, were in love with our company's stock," says Vivien, who lives in San Carlos, California. "Working there, you got caught up in it."
Devotion turned to outrage when a massive accounting fraud masterminded by WorldCom's executives was discovered in 2002. CEO Bernard Ebbers was sentenced to 25 years in prison. Vivien became the lead plaintiff in a landmark class-action suit against WorldCom that established employees with 401(k) company stock as shareholders (before that, the plan, not the workers, was deemed to hold the stock). "Representing my fellow employees helped me see I was not alone in my investing mistake," he says.
The plaintiffs—comprising the company's 103,000 workers and retirees, who lost $1.1 billion—eventually shared a $50 million settlement, restitution of only about 4 cents on the dollar. So today, at 51, Vivien—an account manager for Verizon, which absorbed WorldCom—has grown used to clipping coupons, buying in bulk, and investing completely differently. Many people still load up their 401(k) accounts with their employer's stock, but not Vivien, whose account is back to about $220,000. "I've been diversifying in cash and bonds, so I didn't get hurt as much last year," he says. "I really learned a lesson."
CRUSHED IN TECH'S FALL
It's hard to resist the Next Big Thing. In 2000, Stuart Millner, an auctioneer of industrial equipment, sold his business to ZoneTrader, a Minneapolis dot-com that figured auctions were a natural for the Web.
"These guys had raised $65 million in financing, and I thought they knew what they were doing," Millner, 69, recalls. "And they wanted me."
ZoneTrader paid him $2.5 million in cash and more than $4 million in stock that, in the euphoric thinking of the day, would surely skyrocket when ZoneTrader inevitably went public.
Months later, the tech bubble burst, and at 62, Millner was jobless. The $2.5 million had gone to pay business debts. ZoneTrader's stock was worthless. Then his wife filed for divorce—and a chunk of his assets. "I sat in my home with no income and no nothing and said to myself, 'Now what?' "
The only option: Start over, by hustling again to find equipment to auction. Today his new company is on solid footing, though only about half the size of the original business.
"This wasn't a very pleasant period for me," says Millner, who remarried five years ago. "But was I desperate? No. I was abandoned at 12 to live in an orphanage—my entire world was in a brown paper bag. I lived in foster homes until I was 18. If you know what zero is, everything is a plus."
BAMBOOZLED BY MADOFF
Once upon a time, Connie and Neil Friedman were living the good life as retirees in Palm City, Florida, withdrawing $100,000 a year from the $3 million nest egg that insurance man Neil had amassed. Certified as a master gardener, Neil devoted himself year-round to his hobby, and the couple dined out often with friends.
Then, overnight, the Friedmans' fortune evaporated. They had invested with a business acquaintance named Bernard Madoff, the now-notorious securities broker who last December confessed to running the largest pyramid scheme in history, a $13 billion fraud in which early investors were paid fictitious returns as new investors' deposits came in. The Friedmans were left with just the $50,000 that Connie, 70, insisted they always keep liquid, just in case.
"I no longer eat like I used to," says Neil, 74. "I've lost 15 pounds since December."
Living on $24,000 a year from Social Security, the Friedmans are rigorously watching their spending. Neil is determined to get on with his life: he was hired temporarily by the U.S. Census Bureau, earning $14 an hour, and is thinking about a business helping homeowners grow organic vegetables. He is not eager for Connie to work. "She has a full-time job taking care of me," he says.
Like other Madoff victims, Neil was able to claim a theft loss on his 2008 tax return and received about $40,000 back from the government. He can also carry losses on his phantom income going back three to five years. Eventually he hopes to recover money from the Securities Investor Protection Corporation (SIPC), which guarantees investors against losses when a brokerage firm fails. "If I am very lucky, I could get almost $1 million back," he estimates.
In the meantime, fortunately, the Friedmans have no debt, although they did have a $216,000 mortgage until a few months ago. That was when their neighbors, a couple in their 50s who had read about the Friedmans' plight in the local newspaper, paid off the mortgage in return for a note that will come due when the Friedmans sell their house or die. With that magnificent gesture, says Neil, "I discovered that people I thought were acquaintances were really friends."