What is Your Best Life?
Your Best Life is Lumiant's multi-goal optimization and cashflow engine that has been designed to help financial professionals showcase the value of their advice while allowing clients to answer their biggest burning question - “Am I on track.” The module does this by combining financial data and client goals, to scenario plan and model a household’s best life. Stochastic modelling is used so clients can immediately see if they’re on track, underfunded, or overfunded in regards to living their best life, helping them make better, more informed life and financial decisions.
Your ability to fund your best life
Your Best Life is a multi-goal optimisation engine that enables you to scenario plan and model your client's best life. Using the Monte Carlo simulation, you will be able to see if you're clients are on track, underfunded or overfunded thereby empowering you to help your clients to make better, more informed life decisions.
Are You on track?
Once you've completed your first scenario. The On track score will show you how your clients are tracking toward their goals.
What is the On track score?
The Best Life engine calculates a confidence score between 0 and 100 at the point where all household members have reached their life expectancy to provide guidance on how likely they are to be able to live their best lives.
- 0-69 - underfunded - insufficient funds in order to live your best life. Speak to your adviser to discuss potential strategies to get you back on track.
- 70-90 - on track - sufficient funds to live your best life. You should continue to check in regularly to ensure that you stay on track.
- 91-100 - overfunded - surplus funds after funding your best life. Speak to your adviser to discuss potential strategies to get more out of life.
- Click and scroll across the timeline to see goals plotted out across different phases of life - working & in retirement.
- Use the magnifying glass to zoom in and out of certain areas
- You can easily see the client working, retired and life expectancy status
The best life modeller will automatically incorporate retirement income goals defined by the retirement age and desired retirement income input into the tool. Therefore, if you have a client with a desired retirement goal, continue to capture that goal in the Goals module but do not attribute a dollar value to it to avoid duplication in the modeller.
Within the time bar, you can easily navigate the goals. The graphic seen here can be customised by the client so that they can see pictures that are relevant to them, this help to connect the client personally to their goals. This is managed in the Your Goals module.
The Monte Carlo simulator prepares a likely, optimistic and pessimistic scenario. The projection shows the likely cash flow, excluding assets (e.g. personal, primary place of residence, investment properties etc.), for the household in the future.
- Optimistic - 80% likelihood
- Likely - 50% likelihood
- Pessimistic - 20% likelihood
Note: Your Best Life calculates a stochastic forecast of cash flow over time. Re-running a scenario will result in a slightly different outcome each time, this is intended to be treated as a forecast. Highlighting the likelihood of achieving the ability to live your best life.
The forecast takes into account uncertainty about financial markets performance and produces a broad spectrum of potential cashflows for the future. It is based on many economic scenarios, utilising market return assumptions and asset class correlations.
The client's goals can be seen in the projection chart and are represented as badges at points in time. The captured financial goals show any financial impact e.g when they have received any funds for the sale of an asset or where they have had to pay out a sum of funds to achieve a goal.
It is here in the projection chart, that you can also identify if a client has run out of funds. This is highlighted in the red section of the projection chart.
You can identify the age at which an event happens by hovering over the tab above the year. This will provide you with information on the client's age in that year as seen below.
Click the "projection report" to get the CSV file of all the raw inputs if you'd like them for any deep dives or administrative work, or to be able to download the spreadsheet. This is where you can find everything that sits behind the Monte Carlo and shows where all their money has been factored. This is where you will be able to decipher where the funds are going at certain stages in your life.
You can also export the projection chart as a PNG or PDF to help supplement your advice documentation simply by clicking the hamburger icon on the right.
Trade-offs are the detailed inputs required to generate a "Best Life" scenario. If a client has previously completed a Your Life survey, and the extra financial details were included and completed, the client data will pull through not only to Your Life but also to the Best Life trade off's. Otherwise, it is within the trade-offs where you can enter in the information about the client including their:
- Household information
- House Hold Financials
- Retirement details
- Allocation strategies
- Excess Cash Allocation Strategy
- Reduce Shortfall / Fund Retirement Allocation Strategy
- Business information
- This can be used to enter information if your client owns a business and is planning to sell it at some point in the future
- Household cash flow
- Note: The household spreadsheet can override the scenario by manipulating different circumstances. You can include extra income if need be, take out income for years off, dial down income etc. which will all change the scenario you're projecting. You can expand or collapse these areas when presenting in front of clients to limit detail overload
- Projection options
- Give your scenario a name and apply a risk profile.
- You can show the impact of taking on less or more risk by changing the risk profile of each scenario
Allocation strategies are where you can set strategies to fund shortfalls and redirect excess cash.
Any shortfalls at the end of each year are managed via the Reduce Shortfall Allocation Strategy in the order of the allocations that have been enabled. Any surplus cash at the end of each year is managed via the Excess Cash Allocation Strategy in the order of the allocations that have been enabled.
Allocation strategies follow the flow in which they have been set and specified. To visualise this, picture a waterfall.
In an excess cash allocation strategy, the waterfall will flow into the top bucket (or allocation) to the specified amount. Once that limit is reached it will then move to flow into the second bucket until the surplus funds are allocated exhausted.
Similarly, for a reduced shortfall allocation strategy. Any shortfall in income required will come from the top bucket (or allocation) set. Once this bucket or cashflow is exhausted it will continue to draw down from each allocation strategy to meet the income requirements.
Allocation Strategy to apply to the excess cash available at the end of each period.
Note: If you disable all the options, the excess cash will be treated as cash savings, i.e. the same as if you had enabled Cash Savings and set it to 100%
Enabling build cash savings and specifying the value to 100%, means that any other allocation strategies in excess cash allocation will be ignored as all surplus cash is being directed to cash savings. As seen in the example below.
Allocation strategy to cover any shortfall at the end of each period.
The allocations you wish to utilise should be enabled via their toggle and can be re-ordered by dragging and dropping them into the right spot. The maximum allocation amount can be defined in either dollar (e.g. utilise a maximum of $5000) or percentage (e.g. utilise the full value (100%)) terms. The allocations are processed in the order specified until the shortfall has been covered or there are no more allocations defined.
Investment Property: This allocation can only be specified in percentage terms representing the number of investment properties held, i.e. 100% = 1 property, 50% = 2 properties, 33.34% = 3 properties, 25% = 4 properties. This is so the engine can sell down one investment property at a time, calculating the after-tax return. There are two key assumptions - debt against the properties is presumed to be evenly split and the investment property is assumed to have been held for over 12 months.
Home Equity: As a one-time allocation only at this stage, the engine will allow access to the equity held within your primary place of residence to a maximum of 50% of that equity. e.g. $1,000,000 property with $600,000 debt will allow $200,000 to be accessed to cover any shortfall.
Note: Please do NOT disable the Salary, Age Pension and Cash Savings allocations nor move them unless you are doing it to run a very specific scenario, e.g. pre-emptive asset sell down.
Household cash flow
It is within the household cash flows that scenarios can be overridden by manipulating different circumstances. You can include extra income if need be, take out income for years off, dial down income etc. which will all change the scenario you're projecting.
To transpose the data for a different view, simply click the transpose data button.
Should you need a larger view of the cash flow table, use the "show spreadsheet in fullscreen" option.
Setting a projection name will help to identify or differentiate the particular scenarios from others. This will become helpful as more scenarios are produced to compare.
Use the Reference module to set the growth/defensive split for superannuation ($401K in the US) and investment assets.
You can show the impact of taking on less or more risk by changing the risk profile of each scenario and reviewing how the change to risk impacts the on-track score.
Refer to the assumption and limitations at the bottom of Your Best Life for further guidance on how these might impact the projections.
Once you have completed all the necessary trade off's you can save and run your projection.
Running the projection will take approximately 30 seconds. Once complete, Your Best Life will provide the client with a score that helps to identify if they can live their best life based on the goals they wish to achieve using their financial outputs.
To help your clients see the impact of financial decisions on their best life, you can create multiple scenarios for you to compare quickly and easily. Check out an overview of how it works below.
This feature is available in the Your Trade-offs section of Your Best Life.