During the evening of Sunday, April 14 the Titanic’s starboard side violently scraped an iceberg. Ten minutes after midnight, the order for passengers to head for the lifeboats was given.
At 2:20 a.m., the Titanic finally sank. Breaking in half, it plunged downward to the sea floor, killing 1,503 people including Captain Edward Smith and quite a few wealthy folks. John Jacob Astor IV was a German-American millionaire who had made his fortune in real estate and was the great grandson of the founder of the Waldorf Astoria Hotel in New York. Isidor Straus was the German-born co-owner of Macy’s department store in New York. He died alongside his wife Ida on the deck, deciding not to be separated by the lifeboats.
The Titanic disaster has stayed in the collective memories of people worldwide for more than 100 years and continues to fascinate people today because it was a real-life event that is both terrifying and exhilarating to think how one would handle it.
There is another real-life event causing a similar dichotomy of feelings—people wondering how they will handle their transition into retirement. As a result, it offers advisors an opportunity to help clients learn how to avoid icebergs and other planning mistakes that the Titanic was forced to deal with on the fateful night.
Bad Assumptions
The Titanic was considered unsinkable because of its size, speed and design. It was nearly 900 feet long and more than 100 feet high. It was said to be the world’s fastest ship, capable of reaching speeds of 30 knots. It was also equipped with a double-plated bottom and sixteen watertight compartments on the hull of the ship with doors that would close if water entered them. This was designed to provide the utmost in security.
On its first voyage, the Titanic was carrying 2,208 people, including a crew of 898. It is said that a relatively mild winter had produced a large number of icebergs in the North Atlantic, but the crew, believing their ship was unsinkable, didn’t heed the warnings. A set of beliefs and assumptions that continues to haunt people today.
When it comes to retirement planning, advisors can no longer assume that the size of a client’s nest egg or the rate of return that it produces will make retirement the perfect time of life. Even, if a client’s downside is protected with a variety of insurances, none of it will matter because running out of money pales in comparison to running out of family, friends, good health and ultimately time.
Don’t Compartmentalize Your Retirement Plan
The RMS Titanic was built by the United Kingdom’s White Star Line, who put undue faith in the design of watertight compartments that composed its hull. The compartments were not sealed at the top, so if too many of them in the bow were breached, seawater would flow from one compartment to the next in the same way water fills an ice cube tray. The probability of that happening were extremely low, given its other design features. However, when it struck the iceberg, six compartments were ripped open and flooded immediately. Unfortunately, the ship’s design could only withstand four compartments flooding.