In this episode of Motley Fool Answers, Dan Miller, founder of the Points With a Crew blog is on the podcast today. He joins host Alison Southwick and Personal Finance Expert Robert Brokamp to talk about travel hacking and how you can cut vacation costs by maximizing your credit card points.

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This video was recorded on July 20, 2021.

Alison Southwick: This is Motley Fool Answers, I'm Alison Southwick and I'm joined as always by Robert Brolympic, hopeful Brokamp, Personal Finance Expert here at The Motley Fool. Hey, Bro.

Robert Brokamp: Hello, Alison.

Southwick: Former pole vaulter extraordinaire, and always Olympic hopeful in my mind, Robert Brokamp.

Brokamp: I think I'm still in the top 3 of my high school in terms of pole vaulting record from the '80s, last I checked I'm still up there.

Southwick: I'm sure you still got it. Well, in this week's episode, we're joined by Dan Miller, founder of the Points with a Crew blog. He's here to talk about travel hacking and how to maximize credit points to fund your future vacation. All that and more, on this week's episode of Motley Fool Answers. 

[...]

So, Bro, what's up?

Brokamp: Well, Alison, you know how I love to read the latest research on safe withdrawal rates in retirement.

Southwick: Do l?

Brokamp: Yeah, boy, do you. Such a research is, is it really just for retirees? It can be used by people who are still working as a target for how much they need to save before they can stop working. We've seen this actually recently in a few of our episodes where we've discussed a guideline used by some people in the Financial Independence, Retire Early movement, otherwise known as a FIRE movement. That guideline is that they can retire when they've saved up an amount that is 25 times their annual expenses. The foundation for that comes from the yield 4% rule. If you've saved up $1 million, the 4% rule says you could take out $40,000 in your first year of retirement. What's 40,000 times 25, $1 million, so that's the math behind the guidelines. But the 4% rule is developed with a 30-year retirement in mind. Is it reasonable for people who plan to retire for 40 years, 50 years, even 60 years? Well, this is a question that was addressed in a recent research note from Vanguard entitled Fuel For The Fire: Updating The 4% Rule For Earlier Retirees. Their message for the FIRE folks and really all retirees, you probably need to save more than you think. The first issue is that the 4% rule is based on historical returns for the U.S, in terms of stocks and bonds. From 1926 through March of 2021, US Stocks have returned 10.7% on average and U.S. bonds have returned 5.3%. Unfortunately, Vanguard says we shouldn't expect such high returns over the next decade. According to their proprietary prediction machine, little secret in terms of how they figure it out, but they think that the most likely outcome is that the U.S. stock market will return just 4% a year on average over the next decade and that bonds will return just 1.3% a year. The main reason for the low stock returns is high valuations.

 Of course, for many years, many firms and myself as well, have been saying that high valuations suggest that future stock returns will be below average and the market just laughs in our faces. The market is up 16% so far this year and we're just barely half over. So it's certainly possible that Vanguard's prediction for such low returns for stocks will turn out not to be accurate. But frankly, I still think it's a prudent assumption. But when it comes to bonds, there's really not much debate. When you're starting at a point where the 10-year treasury is yielding 1.3% as it is now, it's almost mathematically impossible to return over 5% a year over the next decade. What does this mean for retirees? Well, Vanguard says that using their projected returns for U.S. stocks and bonds, a 4% withdrawal rate has an 18% chance of failure for a 30-year retirement and a 64% chance of failure for a 50-year retirement. Well, that's discouraging though, fortunately, Vanguard does have some solutions. 

First, they believe that international investments will outperform U.S. investments over the next decade. This is another prediction that people have been making for a few years that is yet to come true. But Vanguard's projection suggests that by investing some of your portfolio in international stocks and international bonds, if you do that, the odds of failure of a 4% withdrawal rate over a 50-year retirement. Again, for the FIRE folks, those odds of failure drop from 64% to 44%. That's good, but it's still essentially a coin flip. To further reduce the odds of failure, Vanguard suggests adopting what they call a Dynamic Spending Rule, which basically entails adjusting your withdrawals each year based on how your portfolio performs. That's not how the original 4% rule works, at least as it was originally conceived. With the original 4% rule, you take out the same amount each year adjusted for inflation, so you're actually taking a little bit more out each year. But with Vanguard's Dynamic Spending Rule, which is explained in their research report, you cut back on withdrawals when the portfolio is down. This leaves more money in your portfolio to benefit from the recovery when it eventually happens.

When I first read this, I thought many people on the FIRE movement have already cut their budgets to the bone, so I'm not sure there's much flexibility in their year-to-year spending. But then I thought the FIRE folks are pretty resourceful, so if there is anyone out there who can find a way to cut their spending a little bit in a given year, it's probably these people. Anyway, according to Vanguard by adding international investments to their portfolio and adopting a Dynamic Spending Rule, the odds of a 4% initial withdrawal rate failing over a 50-year retirement fall to just around 10%. There's a lot more to the report. I recommend the retirees of all timelines read it but the bottom line, frankly for me, is still that over 4% withdrawal rate for early retirees is still a tide too high. That, Alison, is what's up. 

[...]

Southwick: As more people get vaccinated, travel is making a comeback and pent-up demand combined with limited supply means that you could be paying a lot more for travel. Travel hacking could maybe just be the trick to help you travel cheaper in the future. It's been a while since we've talked about travel hacking and we're excited to welcome today, Dan Miller. He's the founder of Points with a Crew, which is part of The Motley Fool's all-star money blog network. Dan, thanks for joining us.

Dan Miller: Thanks for having me.

Southwick: Dan, at the highest level, what is travel hacking?

Miller: Like most kinds of hacking it's all about trying to maximize the value you're getting while paying the lowest amount possible. When you talk about travel hacking, this could be trying to get cheap flights, cheap hotel rooms, any things that maximize the amount of travel you're able to get while paying as little out of pocket as possible. A lot of times it deals with credit cards, so the miles and points that you get from various credit cards are one way that you can travel hack. But there are a couple of other ways that you could do it as well.

Southwick: How did you get started travel hacking?

Miller: I have six kids, so trying to travel anywhere with eight people is in a way eight times as expensive. We had a family reunion in 2014 that was in Lake Tahoe. I live in Ohio. As we were trying to plan for this trip, I knew that eight cross-country plane tickets was going to be thousands of dollars and that it would be perhaps out of our budget. I had heard before of the concept of travel hacking. In the old days, a lot of times they called it an [...], meaning that you would apply for multiple credit cards on the same day as a way to minimize the number of hard pulls on your credit report. I had heard of this concept before but had never really investigated it. This trip to Lake Tahoe that was coming up was the impetus to really get curious about it. I did my research, I opened up a couple of credit cards, and a couple of months later I used 170,000 Southwest Rapid Rewards points that l had gotten pretty much completely from opening new credit cards to fly my family on an eight round-trip to Lake Tahoe and back.

Southwick: Let's talk a little bit more than about the finer points of collecting points. How did you get a bajillion points in probably a pretty finite amount of time, if you knew the trip was right around the corner?

Miller: The easiest way is through credit card sign-ups, signing up for new credit cards. It's really hard to get an appreciable amount of miles and points by just doing your everyday spending. Because if you look at the credit card that you have in your wallet, you're probably getting one mile for every dollar you spend or two miles, or maybe there's a couple of cards or a couple of categories where you might get more. But it's really hard to get a lot of points unless you're spending a lot of money especially if you own a business or if you make a lot of expenses for your company that you get reimbursed, that can be a way to spend a lot of money. But outside of that, really, the way to get a lot of points is through the sign-up bonuses. For example, the Chase Sapphire Preferred card right now is offering 100,000 chase points if you spend, I think, $4,000 in the first three months of having the card. For that $4,000 that you're spending, instead of only getting 4,000 points, you're getting 100,000 points. You're getting 25 points for every dollar that you spend for those $4,000. Like anything, when you think about hacking something, house hacking, travel hacking, whatever, it's scaling it up. Well, I can get 100,000 points if l spend $4,000 in three months. Well, what if my wife also signs up for this card? Now, we can get 200,000 points, and so take it from there in a measured way so that you don't hurt your credit. You're still paying all your bills on time to make sure that you have that baseline in play. But then it's just signing up for as many credit cards as you think you can manage.

Southwick: So the very first reaction for a lot of people when they hear the phrase signing up for a bunch of credit cards is that it sounds like an amazing way to destroy my credit or it just sounds dangerous. What do you say to someone like that?

Miller: That literally is the first question I get from anybody that I talk to about this, "Doesn't that hurt your credit?" It really doesn't. As long as you have the financial discipline and ability to pay your bills off in full every month. My wife and I have been doing this for about eight or nine years now and our credit scores are in the high 700s. You will get a small two or three-point ding when you open up a new credit card. That usually is temporary. In some ways though, having a lot of credit cards can actually help your credit because one of the biggest factors toward your credit score is called your utilization rate. It represents how much of your available credit do you actually use. You've got one credit card and it has a $10,000 limit, and every month you spend about $1,000 on that card. So you have a 10% utilization rate. The bank is looking at you and saying, "Alison uses 10% of her available credit." I have 40 credit cards, as an example, and they all have a $10,000 limit. But I still only really spend that $10,000. My utilization rate is much lower and that has a positive impact on your credit score.

Brokamp: When I hear these things, my concern would be A, people aren't able to pay off the credit card, and that maybe some people actually use it as an excuse to spend money. "I need the point. That's how I'm going to justify this purchase." But that's just by instinct. Is there any evidence that that happens? Or are most of the people who are trying to do the things that you're saying responsible like you and your wife?

Brokamp: I think there are certainly people where that comes into play more. More so your second point, where people are like, "I need to spend $5,000 on my card to get my Delta status to the next level." So they do that or they take these milk run flights where they're flying around at the end of December because they need to requalify for the highest level of status. I think that that happens. I think generally for people that are travel hacking, it's not so much the first thing. It's mostly people that are relatively well off and have the cushions in place to be able to open up a credit card or to be able to get those bonus points.

Southwick: You said that you and your wife have been doing this for a while now. I figured there are only so many credit cards in the world. I know they always talk about the Chase sapphire rewards card. There are always these cards that come up over and over again when you read articles about travel hacking. Are you able to then not cancel your card and then sign up again, or once I've got that suite initial Chase sapphire rewards sign up bonus, I can't ever get that again?

Miller: That's a good point. It is something that has happened. I wouldn't say that I run out of credit cards to apply for, but it's definitely harder. Exactly what you're saying. The rules vary by issuer. American Express, for example, has a pretty strict once per lifetime. For any given American Express credit card, you can only get the welcome bonus on that once in your lifetime. You can get it on the Delta Gold Card and the Delta Gold Business Card and the Delta Platinum Card. Those are all considered separate cards. If I've gotten the welcome bonus on the Delta Gold Card, I can't get it again in my lifetime for that same card. Other banks might be you can't get the bonus if you have had this card within the last 24 months or the last 48 months, or if you currently have the card. It used to be several years ago that you could get multiple copies of the same card. You could just keep applying for the same card over and over again and they would give you the bonus. Even though I literally have three of these cards already, you can just find out for another one and they will give you the bonus. For the most part, that's not possible anymore. With, I would say most credit card issuers, you can apply for a card. Maybe cancel it after a year or two, and then in a couple of years sign up for it again.

Southwick: You talk about on your site that there are point points and cash points. What is the difference here that you are talking about?

Miller: That's a really important distinction to make and to understand. When I talk about cash points versus point points or miles points, not all points are created equal. A Hilton point isn't worth the same as an American Airlines mile, and isn't equal to a Chase ultimate rewards points. They all have different kinds of values just based on what you can redeem them for. A cash point, this would be something like a Capital One Venture card. When Jennifer Garner talks about how she's getting unlimited double miles, those miles that she gets aren't actually miles. They're more of what I would consider points and they're worth one cent. 100,000 Capital One venture miles, which I think is the current sign-up bonus on that card. You're going to get 100,000 points and that's going to be worth $1,000 because each point is worth one cent. That $1,000 you can spend it on an airline flight, you can spend it on a hotel, you can spend it on whatever. But you can't really maximize your value with that because no matter how you spend it, it's worth one cent. It's going to be worth $0.01 no matter what. That's not to say that that's bad. In some ways, that's actually good and it's easier for a lot of people to understand like, "I have $1,000 and I can use this to fly or to travel however I want up to $1,000." Point points or what most airline miles are, hotel points like Hilton or Hyatt, those points are actually not really related to the costs in cash. For example, a flight from Washington DC to Los Angeles on American Airlines might cost 10,000 American Airlines miles. The cash costs might be $100, it might be $500, but it's still going to cost 10,000 miles, so if you have airline miles or hotel points, you can't really think about that as the same as the cost in cash. They're two totally different things that are often unrelated. If a hotel costs a lot, a lot of times it will cost a lot of endpoints as well. But sometimes it doesn't, and that's really finding those sweet spots for something that has a really high cash value. But you can get it for a relatively small amount of points. That's one of the basics of travel hacking.

Southwick: How do you keep track of it all?

Miller: That's the second question I get usually. No joke, between my wife and I, we do have probably 30 or 40 credit cards at any given time. That's a lot. When I tell people that, they are like, there's no way that I could keep track of all that. That's probably true, and you don't have to. I'm a special snowflake where this is something that I really enjoy. I was an extreme couponer way back before I was on TLC Select. I'm into this stuff of maximizing everything. I like doing this and I've got spreadsheets and whatever. If that's not your thing, it doesn't have to be. You can still participate without going to that extreme. What I like to tell people is pick. If you're just starting out, pick a specific trip, maybe a year or so out in the future that you want to pay for with points. Then do some research to figure out how many points it will take and what kind of points you need. Then open maybe one or two credit cards and put the spending that you're already spending on whatever card you have right now on your new card, and with one or two sign-up bonuses, you can probably get a good chunk of your trip paid for.

Southwick: You mentioned there are ways to travel hack beyond credit cards. Tell me more. I'm intrigued.

Miller: It's really just a mindset. How can I get the most value for paying the least amount of money? There's a couple of different things. It's more minor, I think. Like you were saying, most of this is with credit card points, specifically sign-up bonuses. One example that I can think of that isn't credit card-related is that a lot of times rental cars have amazing one-way car rental deals in the spring and fall as people are going in and out of Florida and Arizona. Everybody is traveling to Florida or to Arizona in the fall. Now it's spring and I got all these cars, so now I want to go the other way, I need to get these cars either to Florida or out of Florida. A lot of times one-way car rentals are really expensive, but during these times, most of the car rental companies offer deals where it might be $7 or $8 a day to go from New York to Florida on one-way car rental, which is an amazing deal.

Southwick: Who shouldn't try travel hacking? Who is this not for?

Miller: A lot of it is related to organization. If paying attention to a lot of detail maybe it's not your thing, that's something that you might want to be maybe a little bit cautious about, because if you are good at having everything on autopilot for your one debit card, adding more to that might complicate your life in a way where you would start missing a payment or you start spending more because you don't realize where all your cards are. That I think is the main group of people that I would maybe encourage to be a little cautious about this.

Brokamp: I've actually never done this. I've always used my points for other things. But I have heard that sometimes it's difficult to use points or fly at different times or use them at popular times. Is that still the case?

Miller: Yeah, it can be. We talked a little about airline miles, the cost of a reward flight and airline miles being separated from the cashback. Well, that was one way where you can arbitrage the difference to get something that cost a lot of money for a relatively small amount of points. Well, airlines aren't stupid, they figured that out too. So over the last couple of years have been moving more and more toward a dynamic pricing of things. It used to be that a one-way flight in the US would cost 12,500 miles on most airlines no matter where you flew, no matter when you flew, that was what the cost was. Then you could arbitrage like, OK, why have these really expensive flights, I can just use miles for those and then use my cash when the flights are different. Airlines have gotten smarter to that where the price in miles fluctuates with the cost and cash. It makes it a little bit harder to find outsized value. Hotels are starting to do that too, though it's a little bit less common. There's still a lot of hotels that have a fixed award chart where a given hotel is going to cost the same number of points no matter when you use it or where you use it. It definitely is true that it can be more challenging to use miles because they don't want to give you your flight for a small amount of money or a small amount of miles when they could sell it to somebody else for a lot of money. 

I think that you will find that but the other thing that you want to do is just be flexible. My sister, she knows that I'm the points and miles guy, so she said, "Okay, well, I'd like to come visit you guys, " and so she was giving me some times, like well, I could either visit you next week or over Christmas. Well, those are really bad times because that's when everybody wants to fly. It's really hard to find good deals or really any availability. Generally, now to answer your question about that, airlines have moved away from not being able to use your miles on any, it used to be like it would be blacked out, like I can't use my miles, there's no award seats available at all for most of December. Now they're available but they're just incredibly expensive. It's not a great deal to you, with that same flight that might cost 10,000 miles in the middle of March, now, the day before Christmas costs 100,000 miles. Still makes it a little bit challenging to use your miles, but being flexible is important.

Southwick: In the same vein of changes that have happened in the world of travel hacking and Voi credit card companies have caught on to things, for example, has anything changed as a result of the pandemic?

Miller: One thing that we have seen is that credit card companies have started to give you more options as far as how you can redeem your points, especially travel rewards cards. They're like, "Hey, nobody is traveling." Everybody is going to want to cancel their travel rewards cards. You don't want everyone to cancel their travel rewards card, so Chase specifically started this thing called Pay Yourself Back, where instead of redeeming for travel, you could redeem them in certain categories. I think groceries was one, home improvement stores. It was a way to use your points for cash instead of using it for travel since nobody was traveling.

Southwick: For our listeners who are thinking, OK, I want to give this a shot, where is the best place to start? Or what are some other good sites in addition to yours? Point to the crew that they should be reading.

Miller: Other sites? No, I'm sorry.

Southwick: No, there's not. I imagine travel hackers are probably very much a community of like, "Oh, hey, we just got a new deal, you got to hear about..." You know, being very proud about finding a deal or finding new fine print that delivers a new, yeah.

Miller: There are a variety of different sites. I think one thing that it's important to know before you start reading any site, my site included, is that the way that all of these travel hacking sites make money, or at least almost all of them makes money, is through selling credit cards. So like you sign up for a credit card through my site, I make some money. This is pretty common on the internet, the concept of affiliate marketing. Different sites have different levels of disclosure about that or kind of make it more obvious. But I think that's important. I always try to be very upfront with that fact like, hey, if you sign up for a credit card for my site, I make money. Because it doesn't necessarily mean that my advice is bad. But you should be aware of that. Like, you should say, "Hey, does he really tell me about this card because he thinks it will be good for me or because he makes money if I sign up for it?" And that's the case with every site from the largest sites to some of the smallest sites out there, and that's something to be aware of. When you're reading this advice, just kind of keep that in the back of your mind. My site just points with the crew, I focus on general travel hacking, but especially for families and larger families. Like I said, I'm in a family of eight so some of the unique circumstances of traveling with a large group, some of them are used to be part of a network of travel sites called Boarding Area, which I also like a lot of the sites on there-Frequent Miler, Miles to Memories, Doctor Of Credit, these are all sites that I think are pretty good.

Southwick: We had a fellow Fool on the show in the past, Carl, and he was an extreme travel hacker. We asked him what his proudest hack was. And I believe, if I remember right, it was two first-class seats to Japan that he hacked his way to for free. How extreme can travel hacking get? What's the craziest story you've ever heard, or maybe what's your proudest travel hack?

Miller: Sure. Well, I can top that. That's the way that any human is, right?

Southwick: That's what he's hoping for.

Miller: Whenever someone tells you a story, you're like, "Oh yeah? Well, I can top that."

Southwick: Yeah.

Miller: My wife and I, this was a couple of years ago, we flew first-class around the world. We flew from our home in Cincinnati to Chicago, and that was just on a little regional jet. But then we flew Japan Airlines first-class from Chicago to Japan, and then to Hong Kong. Then we stayed a little while in Hong Kong, and then went to Singapore on Cathay, which was in their business-class because there wasn't first-class on that flight. Then we flew Emirates first-class from Singapore to Dubai and then back to New York City. Emirates is the one that has the shower on the plane. Took a shower on the plane, which I don't know that I would necessarily go out of my way to do, but it was pretty cool. To be able to check that off the bucket list, you get five minutes of water. That's how they do it there.

Brokamp: Just to be clear, you are the only one in the shower, right?

Miller: Yeah.

Brokamp: Okay.

Miller: It's not just like in the back of the cabin, like you're thinking of an airplane. It's its own thing. The bathroom on the airplane is larger than the bathroom I have in my house, to give you an idea of the size of that. That was one of the best trips that we had. Another one that we did is we used our point to transfer to Amtrak and we've taken two family vacations on Amtrak. The cash value was about $6,500, then we took the train from Chicago. We first took the train from Chicago to Denver, and then we did another trip from Chicago to Seattle, which is like 50 hours on the train. We were in the family room, so we have our own private bedrooms, the meals are all included. It was a lot of fun. A lot of good memories.

Southwick: That's awesome. When you do an epic hack like this, does this mean that you're looking at what airline do I need to get me from Hong Kong to Singapore? Then I need to open up that credit card. What airline do I need to get to get me from Emirates? Was that focused?

Miller: Yeah, I mean, a certain sense here because you're asking how I started with the Southwest points. I mean, OK, I know that I need to get Southwest points to be able to take this trip to Lake Tahoe. So, I can open a Southwest credit card, I can also open a Chase credit card because Chase points transfer to Southwest, that was how I took that. If you have a dream vacation, say to the Turks and Caicos Islands, hypothetically, that you want to go there, and you want to stay at this particular Marriott, for example, it doesn't make sense to open a Hilton credit card, right? If there's no Hiltons there or if that's not where you want to stay, figure out where you want to go, where you want to stay and then get the points that will help you to make your trip happen.

Southwick: Wow. Around the world first-class, not too shabby. I think you actually even made Bro slightly less skeptical of travel hacking when he heard that. Thank you so much, Dan, for joining us. It's always interesting to hear what people are able to do with some focus, dedication, organization, and it's something that sounds like that you love doing. You love doing it almost inherently in the act of doing it. You said you were a coupon clipper, too. So there's some amount of joy, I imagine, you get out of doing it outside of the actual travel.

Miller: Yeah. I mean, there's a couple of people that I've heard of that were also extreme coupon owners that are now travel hackers. I heard we refer to the travel hacking as extreme couponing for grownups.

Southwick: There you go.

Miller: I can still take the next level. That's why I started my site back in 2013. It seems like at the time that all these travel hacking sites were written by single guys or people with no kids, for the most part. So I wanted to give a voice to people to be like, hey, that's fun and it's cool to read about. It's way cooler to read about the first-class flight where you take a shower on a plane and then stay at the Holiday Inn Express, right? I get that. But it's just not how my family traveled or how anybody that I really know travel. But I just wanted to get the voice of people to, hey, it's fine. You travel however you want, but if you sign up for maybe one or two additional credit cards, you can take that family vacation next year that you thought maybe you couldn't afford.

Southwick: Dan Miller, thank you so much. Your site is Points with a Crew. Alright, Answers listeners. Get out there and travel because I've missed your postcards. Thanks, Dan. If you're looking to get started travel hacking and you want Dan's advice, you can drop him an email at [email protected]. That's the show, it's edited cloak-drivingly by Rick Engdahl. Our email is [email protected]. For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody.