Recent Changes to Your Best Life Assumptions [Updates and Releases]

Your Best Life - Recent Changes to Your Best Life Assumptions - April 2024

At Lumiant, we continuously review our Best Life engine to ensure it aligns with the evolving market conditions and regulations. As such, over the last few weeks we have made some important modifications to our Best Life model.

Each year, our team updates the capital market assumptions that inform and guide our Monte Carlo modelling module - Best Life. The modelling tool helps financial advisors and their clients to understand whether they are on track, over funded or under funded when it comes to living their best life.

The module does this by running thousands of simulations to identify the 80th, 50th and 20th percentiles to visualize optimistic, likely and pessimistic outcomes for clients. The returns are guided by our underlying asset allocation for each risk profile, taking into account asset class correlations, capital market forecasts and standard deviations.

Additionally, we understand that markets change and it is impossible to predict a certain future. As such, our return simulations do not remain static. Each time you run a projection, the results will differ, giving you a visual aid that brings to life the uncertainty of trying to predict the markets.

Want to learn more?

Read our guide on how Best Life expected returns are calculated.

Inflation

Earlier, our model relied on the most distant forecast value for inflation, which was suitable when inflation was stable. However, given the current volatile inflation, this approach became inadequate given that those forecast inflation figures can quickly diverge from the monetary policy.

Hence, we have adjusted our model to take into account both the forecasts and an overall 20-year average of inflation for each market. This helps us to derive a more accurate representation of the long-term inflation expectations, instead of just reflecting the current inflation trend.

For instance, in Australia, the monetary policy targets to keep inflation within 2-3%. By incorporating a 20-year average of inflation along with the current forecast, we reach an overall forecast inflation rate of 2.77% - a value that is more in line with the monetary policy and inflation expectations over the long period.

In addition to inflation, we’ve updated our model to include a few of the regulatory changes we’ve seen in the market. These include:

• Pension updates - basic rate, pension and energy supplement + asset and income cutoffs
• Super Guarantee is at 11% because whilst it’s forecasted to be at 12% in 2025, we use the current actual 

We will continue to update our Best Life engine in line with market and regulatory conditions and as such this may impact Your Best Life scores. We will be sure to keep you updated whenever the engine is updated so you can explain the changes in score to your clients. 

However, should you ever be unsure, feel free to reach out to your Lumiant Support Success who will be more than happy to help.