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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Episode transcript
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.