Lazy Man and Money

Travel Hacking with Rewards Cards (Part 1)

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I hope all the Americans had a good Independence Day yesterday. Even if you don’t live in America, now is a good time to reflect that half of 2017 is over. Hmmm, let’s be optimistic about having a whole half of 2017 left!

This week doesn’t feel like a real week. Many people weren’t working the Monday before the 4th and we’re taking a little time off on Friday to celebrate our 10th wedding anniversary. So exciting! It’s the busiest dog sitting time of the year, so I could use a little break.

Travel Hacking with Credit Cards
Travel Hacking with Credit Cards

Today, I’d like to write about rewards cards. I’m presuming readers here have at least a couple. I realize some people are against credit cards and that’s okay too. Personally, I like the opportunity to get some money back on something I was going to buy anyway.

For a long time, I’ve been a fan of Fidelity’s Retirement Rewards card. It’s been a steady 2% statement credit for years (once you reached 25,000 miles). Unfortunately, the last time I tried to redeem for statement credit, they changed the miles so it would only give me 1% of the value back. You can still get 2% if you transfer to a Fidelity Retirement account, which I have. I preferred the immediate statement credit much more.

Travel Hacking: The New Reward Card Strategy

Over the past month or two, I’ve been revamping our credit card rewards strategy. I’m trying to hack as many travel rewards as possible. There are two major reasons why:

  1. Our children are 3 and 4, which means we now have to pay for full seats wherever we fly. It’s hard to see our costs to fly double like that.
  2. We’ve had a few big expenses come up. For example, those surprise condo assessments. In addition, my wife is going back to school to get her Masters. She can pay that with a credit card. Finally, we’re nearing the last few months of being able to pay for pre-school with a credit card. In September the new school is going to ACH and checks only. We should have been working to earn bonus points the whole time.

For those new to travel hacking with credits cards don’t be ashamed, my hand is raised too. The general idea is to spend a certain in a certain time. Typically you need to spend around $3000 and $5000 in about 3 months. If you complete the requirements, you’ll get a tens of thousands points as a bonus. They can usually be used for cash back, but are best used for travel rewards. The travel cards tend to give you more value when using your points for travel (which is easy to remember because it makes sense!) And if we using the points for cash back, this wouldn’t be a very good travel hacking article.

I’ve found that the rewards for the best cards are worth about $500 (used cash) or $625 (used as travel). Those are rough numbers, but since we need to spend about $3000 a few times, we might as well get 20% back in the form of travel, right? And that’s just the bonus points. We’ll get regular points on the spending of $3000 itself (about 3000 miles/points). So maybe we get around 22% in travel expenses overall. That’s a lot better than 2% in Fidelity rewards. (Sorry Fidelity, it’s not your fault.)

I used to think it was a ton of extra work, but with autopay on the credit cards, I don’t miss any payments. There’s almost zero risk of incurring any extra fees. The money comes out of my bank account just like any other credit card. Setting up auto pay with Chase and Amex are very, very easy. (I haven’t tried other banks.)

The Cards We’re Using

A friend gave me a tip on credit cards which have “hot” rewards now. That said, there are always a few “old standbys” that you can usually count on.

My first card was a Starwood Preferred card. This was directly on that tip from a friend, which I took on blind faith. It looks like this card bumped up the rewards from 25,000 point to 30,000. (I may be off on the exact numbers here, but I see 34,066 points in my account which would be consistent with 30,000.) I’m reading that Starwood points are pretty valuable and worth about 2.2 cents a piece. If true, that’s roughly around $650.

Next, I got a Southwest Preferred Card. They are running a 60,000 point promotion, where it’s usually 40,000. If you fly Southwest, this is the time to get it. My wife had gotten the 40,000 point last year and we cashed in nearly $1000 of travel rewards to go to Aruba later this year. It’s about the half off. That’s conveniently enough for the two kids to fly free. I’m 40,000 points away from a companion pass for next year. I’m hearing that some people sign up for the Southwest Plus card as well, so get that. I might try that in September or October.

I’m seeing that Southwest points can be worth around 1.5 cents, so the 60,000 should be worth around $900.

Lastly, I got the Chase Sapphire Preferred card. I should have gotten the Reserve version when they were doing a 100,000 promotion, but I missed it. Instead, I’ll only get 50,000 worth of Chase Ultimate Reward points. In the travel hacking world, these supposedly have a tremendous value in cashing in with a ton of airlines. With the Preferred card, I’ll get a bonus and the 50,000 points should be worth around $625.

My wife got a Starwood Preferred card to use. That’s another $650.

As the fourth card in a short time, this is enough spending for now!

If you add it all up, we’ll get around 200,000 points on various programs. If we spend them right, I think they’ll be worth around $3000… maybe just a little shy.

Active Duty Bonus Leads to One More Points Card

My wife got a credit card offer in the mail last week. It’s a rare 100,000 American Express Platinum card. I believe this is the highest amount of points that American Express offers. The only downside is a HUGE annual fee. I think it’s around $550. However, the card comes with $200 Uber credits (that are parsed out monthly and expire monthly) and another $200 in airline credits (for things like extra bags, food, or other fees outside of the core cost of the ticket). There are other perks as well such as a few different airline lounges and possibly that speedy pass to cut the long lines at airports. (See how technical I am with all this stuff!)

This wasn’t exciting until I learned that Active Duty get their annual fees waived at most credit card companies (except for Chase it seems). So this American Express looks to be 100,000 points and hundreds of dollars of value… for free! Why thank you for the invite, Mr. Express… or should I just call you American?

One More Card

And of course, there’s always one more thing, right? Steven Jobs wouldn’t have had it any other way.

While I was going through the research of the Fidelity card’s statement credit change, someone in some forum mentioned USAA’s Limitless Cash Back Card that pays 2.5%. That’s another Active Duty benefit (though military and family are likely eligible to join USAA). I take the extra 0.5% and phase out the use of Fidelity card.

A natural question to ask is, “Why have a 2.5% card at all, when I’m getting 22% in travel rewards?” The answer is simple. These are one time bonus rewards. We’ll have to cancel the cards, wait some time, and try to get them back in the future to get the bonus points. (Although I think we’ll just keep the American Express forever.) I’m not sure how that process works. I know that Chase has a limit a 5/24 limit which means that they’ll probably not approve you for a new card if you’ve gotten 5 in the past 24 months. I’m probably going to be close to bumping up against that.

Final Thoughts on Travel Card Hacking

There was a lot of research that went into writing this. However, you can tell that it gets so complex, I “yada yada yada” most of the details. (Although they are minor details in this case.)

I’m just starting to “build a base” of understanding the ins and outs of various programs. I’m a little torn, because there’s something nice about using the USAA Limitless card and getting an easy 2.5%. I think that if there aren’t bonus points to be earned by spending, I’ll just use that card. Then again I carry a few other credit cards such as an Amazon one (5% back for Prime Members) and an American Express Blue Preferred (6% back at grocery stores).

Have you done any travel hacking with credit cards before? What are your favorite cards?

Our Extremely Bizarre Early Withdrawal Drawdown Strategy

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I had great plans for today’s article… and then I read Our Unusual Early Retirement Withdrawal Strategy. Record scratch! I’ll get back to that article later this week.

It seems that a lot of FIRE (financial independent/retire early) bloggers are writing about how they are going to withdraw money from the nest egg they accumulated when they retire. That sounds simple, but it gets complicated fairly quickly. I’ll be linking to articles later on.

If Retire By 40’s withdrawal strategy is “unusual” (I think it is), then our’s is extremely bizarre. In a nutshell that strategy is: Don’t Do It. I lean much more towards Frankie Goes to Hollywood than Nike.

This bizarre strategy is brought about by a unique circumstance… my wife’s military pension is worth an estimated $50,000 and it’s adjusted to inflation.

At this point, you’re probably thinking, “Hey that’s cheating!” You’re not wrong to be thinking that. Pensions are very rare nowadays. In a lot of ways we are blessed. In other ways, we pay a price. My wife (a pharmacist) could have earned a lot more for years if she worked in retail. She wouldn’t have to think about being deployed for Ebola or Zika outbreaks. If she takes a day off on Friday and the following Monday, she loses 4 days of leave. We work around military restrictions and we receive some benefits for that. In my opinion there are more pluses than minuses.

Let’s put that $50,000 pension aside and pretend it doesn’t exist. After all, for perhaps 99% of you, it doesn’t exist. The idea of that pension kicked me in the butt! I’m not going to be the chump that worked to 65 when my wife retires at 44. Hells no! That’s why I started this blog more than 10 years ago. I wanted to explore how people become financially independent.

Like any money journey there’s been twists and turns. If you want to read 10 years of that history, my archive of articles is here.

A strange thing happened and advertisers started to email me about ad placement on my blog. I didn’t understand it, but if someone wanted to pay my landline bill (people had landlines back then), I was all for it. In fact, I feel it would have been hypocritical NOT to take the ads.

I presume that my blog can earn a revenue of $30,000. I could be crazy as blog income is not reliable at all. However, I have talked to bloggers who stopped blogging more than 5 years ago and it still brings in an income. I also do dog sitting, because… well dogs are awesome and there’s no explanation necessary. I’ve only been doing for the last 20 months, but it seems like an income of $15,000 is possible in my area.

Let’s suppose you say that the military pension and my blog is cheating. I’d argue that we could have earned more money and saved up a bigger nest egg to draw down. I don’t want to get tied up in those hypothetical situations.

Instead, let’s focus our real estate situation. We have a small real estate “empire”. I expect that it will generate around $30,000 of income (after maintenance) when the 15-year mortgages are paid off in 2027.

Also around 2027, we’ll own our home as well. Without mortgage payments, electricity payments (thanks solar panels), limited transportation costs, and military health care, our expenses should be very, very low. I expect that the real estate income would cover 90% or more of those costs.

There’s going to be time when Social Security kicks in. I believe that taking Social Security early and investing it is the best plan. I covered that here. For the purposes of the discussion here, we’d get around $50,000 if we took it at 66.

So, let’s pretend that military pensions don’t exist. Let’s pretend my online income goes to zero. Let’s pretend that I suddenly get an extreme allergic reaction to dogs (let’s not pretend that… I don’t want to live in that world). Let’s pretend that our real estate assets somehow ceased to exist. Let’s pretend that Social Security is not solvent (not too hard), but also that people aren’t paying in at all (which would prevent us from withdrawing money from the system).

Let’s also pretend that I couldn’t find a way to earn an income. Honestly, I’d love to revisit my teenager years in fast food. I wouldn’t want to do it full time, but there’s something greatly satisfying about being able to completing a task by rote. Let’s also pretend that my wife can’t find a job as a pharmacist.

In that contrived scenario, we’d have to look into drawing down from our retirement brokerage accounts. I don’t know how to begin calculating that. Since it is “plan G”, we’ll cross that bridge when we come to it.

Our strategy is to never draw down from the retirement accounts (until the RMDs kick in). As I wrote in the title, it is bizarre. Is that rational? Let me know in the comments.

If you are looking to more conventional drawdown ideas, please see the following:

Link 1: The Retirement Manifesto – Our Retirement Investment Drawdown Strategy

Link 2: OthalaFehu – Retirement Master Plan

Link 3: Plan Invest Escape – Drawdown vs. Wealth Preservation in Early Retirement

Link 4: Freedom is Groovy – The Groovy Drawdown Strategy

Link 5: The Green Swan – The Nastiest, Hardest Problem in Finance: Decumulation

Link 6: My Curiosity Lab – Show Me The Money: My Retirement Drawdown Plan

Link 7: Cracking Retirement – Our Drawdown Strategy

Link 8: The Financial Journeyman – Early Retirement Portfolio & Plan

When Should You Retire from the Military?

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This article was published originally on May 22, 2012. I’ve made minor proofreading edits.

That’s one of the questions we’ll be facing sometime in the next decade. My wife has about 13 years of service and at 20 years she’s eligible to retire.

For many people in the military, retirement is about safety. We have a bit of a different situation as my wife enjoys a typical office job, but with a lot of traveling. As a pharmacist she’s not going to be on the front lines in any foreign wars. She’s not even going to be administering health care in any of those wars unless things get so bad that America itself is a battle zone. [2017 update: Actually, Ebola and Zika are things she could have been deployed for. It’s likely, in my opinion, that these kinds of diseases will be on the rise.]

Being active duty has some amazing perks. We get to shop at commissaries, which are essentially non-profit grocery stores. However, the biggest and best perk is the pension. After 20 years of service, a service member is eligible to retire with 50% of his/her base pay. If they choose to stay on, that percentage goes up 2.5% to reach 75% at 30 years of service. That’s when they start to kick you out.

This brings a natural question, how long should you stay in the military? Obviously the longer you stay in the more your pension is, but the whole point of having a pension is to use it and enjoy it, right? There’s no right or wrong answer for everyone here, but when I looked at the pay charts there were answers that seemed a lot more “right” than others. I’ll illustrate with an example of our own case. We’ll be using these military pay charts. It may be handy to open that in a new tab or window (clicking it should do that).

My wife is an O-5 with over 12 years of service. As we can see that gives her a pay scale of $6999 a month (awfully exact people these military folk). If you scroll down to Over 20 years of service, you’ll see that she maintains the same rank (which is typical), she’ll make $8199 a month in base pay. Retire with 20 years of service and her pension will be $4100 (I’m going to round up the 50 cents) a month or $49,000 a year. That’s a pretty solid pension when you factor in our other retirement saving and the fact that we may continue to work. If she advances a rank, which is likely in the next 8 years she’ll be at the $9371 level good for a pension of $56,226.

Important note about inflation: Military pensions are adjusted for inflation as are these pay charts each year. Thus for the most part we can ignore inflation factors.

Now, let’s look at what happens if she stays in and goes longer than 20 years. If she doesn’t advance in rank her pension goes to $8446 a month after 22 years and stops growing. However, since 2 more years of experience gives her another 5% of pension (2.5% growth each year) she would make $55,743.60. After that she is “only” working for the very nice salary and the increased pension size (I had to double check my typing there – yikes). I put only in quotes, because that’s still a lot, but there’s no growth in salary.

However, if she’s able to advance a rank to O-6, the growth curve continues until 26 years of service before it levels off… where retirement for an O-6 would give $56,226 at 20 years. At 26 years, an O-6 would get 65% (the 6 years more years of service gets closer to the 30) of the $10,350 salary or $80,730 a year! Of course during this time the O-6 also gets the nice paying salary.

With pensions, life expectancy also comes to mind. If you were to work 20 years, getting 100% of your base pay as a pension seems great. However, if you get to age 70 and die at age 75, you didn’t really maximize that pension money. My wife will be 43 or 44 when she has 20 years of years of experience (I can’t remember which). If we were to assume a life expectancy of 75 years (I’ll be conservative), that’s 31 years of pension at $56,226. Going with the hope that she’s an O-6 at the time that would be $1,743,006 in pension pay over that time (and again, this is adjusted for inflation). However, if she goes with the 26 years she’ll retire at age 50, giving her 25 years of pension at $80,730. That’s $2,018,250 in pension. Those 6 years add another $275,244. If she were to live to 80 it becomes a $397,764 difference and at 85 it becomes a $520,284 difference.

I’ll let you do the math for the total value of that pension (hint: it is close to $3 million). It should come as no surprise that the military is seriously looking to reduce the pension benefit as a way of balancing the budget.

One thing I should have noted previously is that there are a few retirement systems in the military. This uses the Final Pay system, which my wife wouldn’t qualify for. Since it applies to people in the military before 1980, very few people people will be in the system. There’s another system called the high-3, which averages the high 3 years of pay to determine the benefit. This is more accurate, but it makes for a much more complicated analysis. The principles still remain the same, but the numbers and years change slightly.

The lesson here is to look at the military pay charts and plot out a career path in advance. It is easy to say, I’ve had enough of the military and its time to get out. However, it is worth stopping and doing some math and seeing if getting that next rank advancement is worth it. The difference could be as much as a half million dollars.

A Sucker Punch of Personal Finance to America

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In the last 24 hours I’ve had three experiences drastically change how I feel about personal finance in America – one of them major, one of them minor, and one… calling it a stretch would be generous.

Last night, my wife called me from her hotel in upstate NY. That’s a long ways from our San Francisco home. She said, “It’s worse that I thought here.”

Let me back up a bit. My wife has a white-collar job in the military. She asked to be deployed to help with victims of Hurricane Irene as that was a requested need. I was surprised to hear about a military deployment to Hurricane Irene months after the fact. I didn’t really take the need that seriously. It seemed that Vermont got all the news stories, not New York (though there’s not a large distance there). I had figured that by this time everyone had reached safety. This clearly wasn’t going to be like the deployment for Katrina that I’ve heard so many stories that I won’t repeat in this space.

What’s so bad in upstate, NY? It turns out it is a personal finance nightmare. There are people who don’t have houses because they were swept away by the river. Some of these people didn’t have flood insurance. (Dear FEMA, you require me to buy flood insurance when I already have it, and others don’t have to have it at all? Really?!?!) Many people lost their jobs because they were literally washed down the river as well. My wife explained that these people are in the worst kind of pickle – no home so they can’t get a job… no job, so they can’t get a home. I’ve never really thought of this predicament. Two thoughts immediately came to mind:

  • Where’s the emergency fund? It kills me that over and over again, people don’t seem to have an emergency fund set up. They don’t realize it until something that they can’t control and devistates them – like a hurricane or a flood.
  • What about and extended stay hotel on credit cards? I know it’s not a good situation, but getting income is key and if a place of residence is required, get an extended stay hotel and use that. You need to stay somewhere. In times like this, it’s probably worth even looking to cash out some those Roth IRA and 401k savings. The kind of thing is a financial set back, but you are able to live.

I’m waiting to hear more details about the pickle, because it seems solvable especially in extreme cases that effects the whole community. I’ll be waiting for a couple of weeks until my wife gets back. Then I’ll be able to ask her in more detail.

I do believe she is coming away with a new appreciation of sound personal finance. Though in some ways she may think my site is more of joke now, as I don’t cover these extreme situations – the ones where people need the most help. I honestly don’t have a lot of experience with such situations, so I don’t know if my advice would be helpful. I’m better off at handing the “problem” of having maxed out your 401k too early in the year (we should be so lucky).

There’s hope though. I think people are learning from these experiences. And I don’t think they are learning from just having it happen it to them, but the media is doing a decent job covering it. Unfortunately, there’s also a lot of people learning about how unemployment works from first-hand experience. I was there once and I didn’t want to go back. It directly lead to the creation of this website. This whole thought of hope came to me in the form of that second, minor experience that I mentioned above. I was watching an old episode of Clark Howard and he said the following in a clip on a radio show:

“I used to feel I had to convince people why they should be smart with their money. I don’t have to do that as much any more. The mood of the country has changed.”

When I first started writing about why MonaVie was a scam, a lot of distributors said, “Big deal, it’s only $125 a month. I know my finances and I can afford that.” I would love to be able to audit them and find out how many of them have a year of expenses in their emergency fund. I’d like to know how many have their retirement all squared away. The $125 per month, per person in a family of four turns out to be $5000 a year (there’s some bulk discounts). I think people are now starting to take stock of what that $5000 a year would mean to them. We are talking aftertax money too. That’s like giving yourself a $7500 at work. Who wouldn’t want that?

I’m cautiously optimistic that America seems to be getting it. Perhaps America is as smart as my dog after all.

This brings me to the third experience – the Sucker Punch. I was watching the movie last night (scantily clad women fighting with swords is the kind of thing you can get away with when your wife is 2500 miles away) and while the long middle part of the movie dragged from too many fight scenes, I thought the ending was fantastic, perhaps one of the best I’ve seen. I don’t think I’m giving anything away with this, but I’m going to leave you with the final sentence:

“You have all the weapons you need – now fight!”

The Looming Government Shutdown May Hit the Lazy Man Household

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I had been delaying this post ask long as possible in hopes that the impending government shutdown wouldn’t happen. Assuming you haven’t been living in a bunker somewhere, you’ve probably heard about it. To dumb the down significantly, a bunch of politicians can’t agree on the budget. Without a budget in place, the parts of government is essentially going to shutdown to avoid spending money. This means that many employees will be furloughed, essentially a forced stoppage of work without pay. This happens tonight if a deal can’t be struck.

If the government shutdown occurs not all employees will be furloughed. Some government workers have critical jobs to the safety of the country and there is a plan to keep them working and paid. The Army and Navy are two examples of employees who will continue to work and get paid. People working a desk job at the FDA though, well, they are going to be furloughed. This puts my wife (and us) in an interesting position. She does have a desk job, so her position is one that would be furloughed. However, she’s an officer in the military and the organization of officers correctly points out that the official guidelines on record require that they be exempt from furloughs.

When I read about this yesterday, I got a tiny bit excited. I thought that this could mean that the job is furloughed, but due to the technicality, my wife would still have to be paid. Of course this is completely counter-productive to the whole idea of the furloughing in the first place. However, we are talking the government here, so I wouldn’t put it past them. Unfortunately, my hopes were dashed last night when we received notification on how a government shutdown may effect us. It didn’t give much explanation and felt like a Mom’s response of “Because I said so.” The notification declared that employees in my wife’s situation would be divided into three groups:

  • Excepted from furlough with pay – Employees will report to work as usual and get paid for it.
  • Non-excepted from furlough without pay – Employees will not report to work and will not get paid.
  • Excepted from furlough WITHOUT PAY – Employees are expected to report to work as usual and NOT get paid for it.

So much for my dream of my wife not working and getting paid for it. The first two groups aren’t very interesting as that’s what is going on with the rest of the government workers from my understanding. The third group, well, I have a problem with it. I could see if these were people who had a part in the budget debate – this may force them to come to resolution quickly. However, a bunch of politicians failing to put together a budget shouldn’t force people to work without pay. I would expect people falling into that group to lawyer-up quickly. I’m not an expert in labor law, but I’m going to go out on a limb and put forth the idea that forcing people to work without pay is wrong. I almost want to see a government shutdown so that this can get exposed.

For those employees who fall in the later two groups of not getting paid, I feel for them. I can only hope that they have a good emergency fund saved up and that they know how to save money. In the Lazy Man household, we have a strong emergency fund that could last us 2-3 years if we didn’t earn another dime. We didn’t consciously put aside that much for an emergency fund, we just hadn’t been sure to what to invest it in. The other thing is that my blogging income can completely maybe sort of support us. Over a year, it would probably come to within a couple of thousand dollars of our necessary expenses.

As you might be able to tell, there’s not much worry here. In all likelihood the shutdown won’t last more than a week or two anyway. If a deal is reached before the shutdown, this all becomes and exercise in hypotheticals. Still it serves as an important reminder of the value of a sound financial foundation.

Update: There’s now a Furlough FAQ available. From Section D1, it sounds like excepted employees will be paid. Interestingly according to section F2, previously approved leave (vacation, etc.) is revoked and the person is considered AWOL if they don’t show up for work. That doesn’t quite seem right to me.