Smart Money Podcast: FIRE Up Your Finances with Early Retirement and Credit Card Reward Tips

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Discover strategies for achieving early retirement with the FIRE movement and learn how to maximize your credit card rewards.

How much do you have to save if you want to retire early? Can you double your credit card rewards by paying off one card with another? Hosts Sean Pyles and Elizabeth Ayoola discuss the FIRE movement and maximizing credit card rewards to help you understand how to achieve financial independence and optimize your financial strategies. They begin with a discussion of the FIRE movement, with tips and tricks on understanding different FIRE strategies (Lean FIRE, Fat FIRE, Barista FIRE), adapting financial goals to individual circumstances, and the feasibility of saving significant portions of income amidst rising living costs and inflation.

Then, credit card Nerd Erin Hurd joins Sean to discuss maximizing credit card rewards. She explains the impossibility of doubling rewards by paying off one card with another, effective strategies for couples to maximize credit card points like leveraging multiple sign-up bonuses and using authorized users, and the best and worst ways to redeem credit card points, emphasizing considerations such as point expiration, the impact of inflation on point value, and the importance of having a realistic plan for point usage.

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This transcript was generated from podcast audio by an AI tool.

It’s another day at work doing the best job a girl could ask for, talking about money and hoping I earn enough to retire early.

I feel you, Elizabeth. But given the current cost of living, is early retirement still a possibility? And how can people do that when it can be hard to save anything? Welcome to NerdWallet’s Smart Money Podcast. I’m Sean Pyles.

And I’m Elizabeth Ayoola. Now this episode we are going to answer a listener’s question about how to get the most out of their credit card points. Are you better off using them to get cash back or booking airline tickets? Speaking of which, I might do that soon. And what about using them at checkout at Amazon? But before we dig into that, let’s chat a little bit about the FIRE movement, one of my favorite topics, and whether it’s still a thing considering how the cost of living has gone up for so many, even though inflation has been cooling lately.

So Sean, you should already know I’m going to be putting you in the hot seat and quizzing your CFP knowledge. For new listeners, Sean is studying for his designation, and he’s almost about to throw up a peace sign after his final exam. So tell us, Sean, what is FIRE?

Yeah, I have just a few more months until I sit for the CFP exam, and the studying is getting very intense. But anyway, it means I know a lot more than I did even a few months ago, which is great. So FIRE stands for Financial Independence Retire Early, and it’s a movement aimed at using different saving strategies to help people, you guessed it, retire early. Early looks different for everyone, but it’s certainly before the Social Security retirement age of 66 or 67 depending on when you were born. The main goal is to save as much as you can to retire at your chosen age. For some people that means saving between 50% and 70% of their income for retirement. That probably sounds extreme, but that’s what it might take to avoid working into your golden years.

Definitely sounds extreme for the average person, I think. But I do often sit and think about how nobody warned me that I would be spending decades of working or maybe I was too worried thinking about how I was going to stay married for decades and missed that I was going to be at work every single day, anyway. But assuming you start working at the age of 21 and retire at 66 without any career breaks, that’s like 45 years of working. So for people who do not have time for all of that, they tend to subscribe to the FIRE movement. I am people. As much as I love my job, I definitely would love some more flexibility. So anyway, there are various types of FIRE out there to fit one’s savings and lifestyle preferences, so to speak. But the main types of FIRE that are out there include Lean FIRE, Fat FIRE, and Barista FIRE.

Sean, do you quickly want to explain what those are for us? Break those down.

Sure. So Lean FIRE is for people who want to retire early and retire fully, but it requires a steep sacrifice as you’ll likely have to save well over half of your income. It’s also ideal for people who can embrace a minimalist lifestyle and live off of little during retirement.

Fat FIRE is essentially the opposite. People who are high earners and want to continue maintaining that lifestyle in retirement. They have to invest larger amounts of money than Lean FIRE disciples for this reason. Finally, Barista FIRE is for folks who are more focused on choosing the type of work they do and the frequency at which they work. So think of people who want to partially retire and maybe work part-time. They save enough so they don’t need the bulk of their income to come from paid work.

Love, love, love that. And I love how there’s so many different options for different people, but I personally would love to retire in my 40s or 50s and I’m definitely a Fat or Barista girl. So I want to do all the fabulous things during my retirement and I want to be a grandma and I want to bring my fabulous grandkids along sometimes. And just for the listeners, my 6-year-old son said he wants 10 kids, so who’s going to-

Wow, that’s a lot of grandkids.

It’s a lot of grandkids. And he said I’m apparently going to help him look after them, so I’m going to need a lot of money here. You know what I’m saying? Yeah, right. But yeah, I will always want to do some sort of meaningful work, that said, but would love more flexibility in terms of when I work and the type of work that I do. So Sean, is early retirement something you think about and where would you fall in between the three?

I would love to retire early. Don’t get me wrong, I really like my job and helping people through my work gives me a sense of purpose and satisfaction, but also I want to do what I want when I want. So I think I would lean more toward the Barista FIRE. Once I have my CFP certification, I can see myself building a portfolio of clients that I manage and that would be my equivalent of Barista work.

I love that. I love that, I love that. All right, so now I’m wondering how feasible it is to save half or more of your income in this economy. I know I’ve seen a few data points this year about Americans either dipping into their retirement accounts because of inflation or cutting back on retirement savings altogether. So for instance, the 2023 TIAA Institute-GFLEC Personal Finance Index found that 25% of employed adults cut their retirement savings because of inflation-induced financial pressure, and almost half of that group halted their savings altogether. Also, a 2024 Allianz Life Study found that 67% of Americans are more concerned about paying their bills than about their financial future. Another 42% have withdrawn from their retirement savings because of inflation.

So what is my point in all of these data points? The question is, is FIRE even still on people’s radar when they’re trying to survive daily expenses? My assumption is there is still a population of people who are feeling the pinch but can afford to still save more than the average person or make sacrifices to do so. Now, honestly, I was able to do it easily last year saving a big chunk of my income. But this year with new expenses, moving cities, and the cost of living, I’ve had to scale back some. So I’m still saving a decent chunk, I’d say, but certainly not half of my income or more.

Yeah, I mean the truth is the FIRE movement is a pipe dream for most people, but so is the idea of completely retiring for many people, unfortunately. To zoom out, the median retirement savings for folks between the ages of 35 and 44 is $45,000. And for those between the ages of 55 and 64, it’s $185,000, and neither amount would be enough to fund decades of retirement. So for many people, retirement will be funded through some combination of money they’ve saved, Social Security, and some form of work. And a quick aside here, for those who are thinking that Social Security won’t be around when they retire, I say please do not fall for numerous political messaging. We have earned these benefits and we need to fight for them if we want them, but that’s my own little thing.

I know that’s right because I’ve earned the benefits and I need them when I retire. So we’re in the fight together, Sean. That said, I understand that it’s probably not feasible for the average person to participate in FIRE and save half of their income. In some instances, it might require getting an extra job or a side hustle to fund those early retirement dreams. That’s what I personally did, but it did take a lot of discipline and sacrifice because I was working more than I probably would have wanted to. And I wasn’t able to go on shopping sprees or vacation on a whim because I was like, “Hey, got to earmark this for retirement.”

Totally. So if retiring early really is a priority for you, it is going to take some combination of living off much less than you earn, likely increasing the amount that you do earn, and getting really creative about how you save and invest money. And this does raise the question of how much you even need to retire. For many people, they can get away with living off of 80% of their current salary in retirement. So for a very basic estimate of how much you might need to retire early, figure out what 80% of your salary is, multiply that by your life expectancy, and you have the magic number that you need to save for. Again, that’s at a really simple level at least.

Right. And I think even if people aren’t with the FIRE movement, it’s still good to think about what your retirement plan is. And I’m often talking to friends, family, and one of my favorite icebreaker questions is “When do you want to retire?” I know I’m not a fun icebreaker, but still, it does get people thinking about “Ooh, when do I want to retire?” And then it gets the ball rolling in terms of starting to do that math to see how much you need to save. So while you may not be able to retire in your 50s or 40s, it doesn’t hurt to see where you are and whether you can even afford to retire at the Social Security retirement age with your current savings and the pace that you’re currently putting away money as well.

Yeah, sometimes seeing that number can be the motivation that you need to get more organized with your money, ask for that raise or even start looking for a higher-paid job.

Right, and even if you can’t save the amount you want to right now, having a plan in place means as soon as your income increases, you can roll that plan into action. It’s easy to put off thinking about it, but as my mom friends say, the days are long, but the years are short. And I think to whatever extent we can control, we should try and set ourselves up for the best retirement possible. And money plays a huge role in that.

So I think the bottom line here is that yes, the world is expensive, but there are also plenty of people who earn a lot of money and are able to sock away a big portion of that money. FIRE is still feasible for a dedicated privileged few, but for the rest of us, we’ll have to keep working hard, saving our money, and doing what we can to ensure that Social Security pays out when we are in our golden years.

And playing the lottery. Just kidding.

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We are back and answering your money questions to help you make smarter financial decisions. This episode’s question comes from a listener’s text message. Here it is. “Hi. I recently got married and I’m wondering about the best way to work with our different credit cards. Is it possible or a good idea to put all of our purchases on one card and then pay off that card with another card, thereby giving us rewards on both cards? We would of course then pay off the card using a checking account to avoid carrying a balance.” To help us answer this listener’s question, we are joined by NerdWallet credit card pro Erin Hurd. Erin, welcome back to Smart Money.

Thanks so much, Sean. Thanks for having me.

So let’s talk about this clever idea that our listener and their spouse have. Paying off one credit card with another credit card to try to effectively double the amount of points that they could get for their purchases. Is that even possible?

Well, I have to say it’s a very clever idea. And so I give a big hats off to this reader for thinking outside the box and also for making a plan to avoid carrying a balance upfront. Because if you’re carrying a balance on a credit card, the interest you’re going to pay will far outweigh any rewards that you’ll earn. However, unfortunately, this strategy is not possible. You cannot pay the monthly bill of one credit card using another credit card, and the rewards that you earn from credit card issuers, they come at a cost for the credit card issuers. And so they would be out of business if they were paying double rewards that way.

If the listener was carrying a balance on another credit card, it would be possible to transfer that balance to a new credit card so they could open up a new card with a 0% intro APR period on balance transfers, and then they would get some extra time to pay off that balance without paying interest. But that’s really the only way that you can essentially pay one credit card with another credit card. And I also wanted to note that you won’t earn any rewards on a balance transfer.

In fact, there’s almost the opposite of a reward because you typically have to pay a fee for the balance transfer.

So our listeners’ original idea won’t work out, but there are some other clever ways that couples can tag team their credit card points game. Can you talk us through some of those?

Absolutely. I love partners working together in credit cards because two partners mean double the potential for new card signup bonuses. So if you’re thinking about a new card, it could make sense for your partner to also apply for a new card. That could be the same card, they could be different cards, but that way each of you will earn a nice signup bonus. And it can even make sense to double up on some cards that charge an annual fee, which paying double annual fees might give you a little bit of pause. But for example, some hotel credit cards, they’ll offer a free annual night certificate. So if both partners get the card, not only will they get two signup bonuses, but they’ll also get two free hotel nights a year. That way they can have a nice weekend getaway instead of just one night. They will pay two annual fees, but the cost of those two annual fees should work out to be a fraction of the value of what they would pay in cash for a free weekend away at a nice hotel.

But I would imagine this would require the couples to be more proactively managing all of the various points and benefits that they get from their cards, right?

Absolutely. And meeting a signup bonus is an important part of opening a new card. And so if you are not going to be able to meet the spending thresholds in order to earn those bonuses, then think twice about the cards that you’re going to open up and maybe just one card.

So Erin, I know this is something that you and your husband do. Can you talk about how you approach this strategically with your partner?

Absolutely. So first of all, we are going to make sure that we have enough spending coming up in our everyday expenses that we’re going to be able to meet the minimum spending requirements if we’re opening two cards. We want to make sure that we’re not spending more than we would ordinarily in order to hit those bonuses. And for people who don’t spend as much on the cards, they don’t have big expenses coming up, another way to hit a bonus quickly is that you could add your partner as an authorized user on your new card, and that way two people spending on the same account can help you hit that spending threshold a little bit more quickly.

So someone could be an authorized user on their partner’s card even if they have the same card?

That’s correct. And also I wanted to point out that some credit card issuers do allow you to pool points with your partner or even sometimes with other family members, and that can make it easy to amass a big stash of points that you could maybe use for a big trip. Sometimes partners can even refer each other for a new card. So sometimes I could refer my husband and if he uses my referral link to open up the card, then I will get a referral bonus and he’ll get the new card signup bonus.

Oh, very nice, I like that. So this listener’s question got me wondering about all of the different ways that we can use our credit card points when we have accumulated them. Some cards will let you redeem your points to cover purchases or let you redeem them for items in their online stores. Some will even let you redeem your points when you’re checking out at Amazon. And I imagine that your points will go further in some places than others. So how can people determine where is the best place to use their points?

That is such a great question, and it’s one that can be really confusing because these options are popping up more and more. And so first, let me say that your points are best spent however they’re most useful to you. So if you have a bunch of travel points but you don’t have any travel plans on the horizon, it’s okay if you choose to use them for something else, even if they’ll be less valuable. Don’t feel guilty about them. They’re your rewards. You can spend them however you want to spend them.

But if you do want to get the maximum value from your points, the first step is to have an understanding of how much these points could be worth. So when rewards are cash back rewards, they’re easy, 1 cent is worth 1 cent, but travel points can be more difficult. NerdWallet does a deep dive analysis on the current value of many top airline and hotel programs. We can link to that in the show notes, but each different kind of point or mile will be worth different amounts. And so having a basic understanding of the average current value of these points will really help you make some smart redemption decisions.

Well, are there places where people should maybe avoid using their points?

Yeah, so I would watch out for the options we see more and more of these days to redeem your points directly at stores. So at Amazon, for example, when you go to checkout, I’m sure you’ve probably seen the option to pay using your points. They have lots of different kinds of credit card rewards points available, and it makes it really easy. You feel like you’re getting stuff for free if you’re using points instead of actually using your real credit card, and that feels good. Getting free stuff feels good. Sometimes using your points can even be the default payment method at some of these stores without you even choosing it. So I would watch out for that. The good news is it feels like you’re getting free stuff, but the downside is that you’re often getting poor value for the points when you use them this way, unfortunately. You’re paying for the convenience and the store is betting on people not really understanding or questioning the value of your points. So for example, if you use Chase Ultimate Rewards Points at Amazon checkout, they will be worth 0.8 cents each. But those same points can be worth up to 1.5 cents each when you use them to book travel through Chase, depending on which Chase credit card you have. Or sometimes you can even get higher than 1.5 cents if you transfer them to travel partners. And so that’s a big difference there.

Quick note that Chase is a NerdWallet partner, but that doesn’t affect how we talk about them. So Erin, you are a credit card expert. Do you have a hierarchy for maybe the best to worst ways to use your credit card points?

So I have a lot of credit cards. I have a lot of different points in various different loyalty programs. So for me, I’m doing a lot of mental gymnastics, deciding if it’s a good deal or not when I redeem my points. But here are some of the things that I’m considering in my head when I’m deciding. So I’m thinking about the expiration. Are these points going to expire? Thankfully, most points don’t expire as long as you have the credit card still open.

Or for some of the travel points, if there’s some activity in your account every 18 to 24 months, your points won’t expire for the most part. But if you anticipate closing a card, make sure you can use all those points first, even if you’re not getting the best value. Because points in some airline and hotel programs, they can have a hard expiration date even if there is activity in the account. So that’s the first thing I would look at, are these points ever going to expire?

And even if someone’s points won’t expire soon, it’s likely a good idea to use them sooner than later because inflation is decreasing the value of our credit card points, right?

That’s right. Holding onto a whole bunch of points is not really a good investment strategy because you’re not earning any interest and you are definitely going to be a victim of inflation at some point or another.

All right, so what other questions are you asking yourself as you think about what points to use where.

I’m considering if I have a realistic use for these points in the next year or two. It can be really easy to hoard these points, even inadvertently, in order to save them up for a big trip or a big someday aspirational something. But if you’re hanging onto those points for years and years, it really just isn’t a great strategy because the points are worth money. But those points, like I said, they’re not earning any interest, they’re just gathering dust in your account, and really the travel redemption options, if that’s what you want to use your points for, those options are always changing and they’re often getting devalued, and it’s completely out of our control. And so I say it’s better to use them now even if it’s for a lesser value.

Yeah, I recently found myself in a similar situation of inadvertently hoarding some points. I had this credit card that I took out years ago because it gave me a decent amount of points at the pump, but then I eventually stopped using that card as frequently, but I had a bunch of points racked up and they were just sitting there. I would get emails every so often from this credit card saying, “Hey, you want to use your points on something?”

So I went into their online store. When you log in, you can get random things like sunglasses or Stanley Cups or what have you. And I bought myself an Apple TV basically for the sake of using the points, but I did wonder whether I was making the most efficient or optimized use of those points. So I don’t know. I would love to hear how you think about these online storefronts that credit cards have. Do you think these are a good use of credit card points or not so much?

It really depends. Usually they’re not the best value. Sometimes the credit card issuers will run specials where buying items with your points, and usually it’s only specific items, it’s not all the items, but maybe items that no one’s really buying, and that’s why they’re going on sale with the points. Sometimes it can be a decent deal. I’m recalling in recent memory, Chase has offered a 10% bonus on Apple products through their portal on occasion. So that can be a good use of points if you’re in the market for an Apple product anyway. But for the most part, I would say do the math, compare how many points they’re asking to the cash price, and just make sure that you’re getting a decent value.

Any other questions that you ask yourself as you’re thinking about where to use your points?

Yeah, especially in terms of shopping. I’m thinking about can I get more value for myself if I redeem these points for cash instead of using them for shopping? Like we’ve been discussing, some of the options to use the points at checkout are convenient, but you’re paying for that convenience. So here’s another example for you. Citibank issues Thank You Points, that’s their reward currency. And those points can be redeemed through PayPal, if you check out at PayPal, for anything that you’re buying for a rate of 0.8 cents each. Now, in most cases, those same points could be redeemed for cash at 1 cent each. So if you’re going to use them through PayPal for 0.8 cents, you might as well take the couple of extra steps and redeem them for cash and then use the cash to buy whatever you were going to buy for PayPal.

And a quick note that Citi is also a NerdWallet partner, but again, that does not affect how we talk about them. Your example there underlines a certain skepticism that I have about all of these corporate partnerships in the credit card space. Like the PayPal Citibank collab seems like it could be a good deal for customers, but as you just outlined, it isn’t so much. So should people in general just be wary of these deals that they see between different companies or are they sometimes actually a better deal for us?

I rarely would say that they’re a better deal. Sometimes they are as good of a deal as you could get in other circumstances, but oftentimes they’re not. So I would just really advise understanding how much your points could be worth, and if you can take that extra step to redeem them from cash and then use that cash, you’re probably going to be better off.

All right. And as ever, ask yourself “What’s the catch?” Well Erin, thank you so much for talking with us.

Thank you so much for having me.

And that’s all we have for this episode. Remember, listener, that we are here for you and your money questions. So send them our way. You can call or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate, and review us wherever you’re getting this podcast. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

This episode was produced by Tess Vigeland. Sara Brink, the best audio editor in the world, mixed our audio, and a big thank you to NerdWallet’s editors for all their help.