Well in Mexico
by Ken Luboff
Before our move to Mexico, we spent many
hours crunching numbers, determining whether or not we could afford to retire.
We spoke to experts, who assured us gravely that we would need many hundreds of
thousands—even millions—of dollars to retire and live well for the rest of
our days. The discussions were disconcerting, to say the least.
Then we took a trip to Mexico and talked to
retirees there. We found that many were living well on $800 to $1,500 per month.
What gives, we asked? What gives is that almost everything in Mexico costs 25 to
75 percent less than it does in the United States, depending on your U.S.
location. A decent lunch in Mexico, for example, might cost around $5, while the
same lunch would cost $12 in Houston and $20 in San Francisco. Prices also vary
from place to place within Mexico. An elegant meal for two in a restaurant in
Mexico City can easily cost more than $100, while the same meal in San Miguel de
Allende will cost only $50. And if you retire in a city with few or no other
foreigners, the most expensive restaurant in town might set you back only $20
for two. And no matter where you are in Mexico, two people can always find a
delicious meal for under $6.
Housing costs vary the same way. In Chapala,
a six-room, two-bedroom house in a nice neighborhood costs about $450 a month to
rent. That same house in San Miguel de Allende might rent for $600 a month, and
in Mexico City $1,000 a month. In any out-of-the-way Mexican village, you could
rent that same house for almost nothing (if you could find it). Friends of ours
rent a house for about $500 a month and live well for about $1,200 per month
total, including the cost of a part-time maid and gardener. Barbara and I own a
house and live a more luxurious lifestyle for less than $20,000 a year.
Our guess is that almost anyone reading this
can afford to retire in Mexico. Begin by examining your resources. Do you have
money flowing in each month from Social Security, a pension, a part-time job,
royalties, investments, or inheritance? Would you consider selling your business
or home or renting your home to free up enough cash to help fund your new
Estimating what life below the border will
cost is tricky. Even if you intend to maintain the same lifestyle you have in
the States, your life is likely to change in unknown ways. For example, Barbara
and I never imagined that after only one month in Mexico we would have a maid
and cook coming in for a few hours each day. In the States, only people with big
bucks can afford such luxuries. But in Mexico, where the wage is about $1.50 to
$2 per hour, almost anyone can.
We estimate that you will live an equal, if
not more gracious, lifestyle in Mexico for about 25 to 50 percent of what it
costs in the United States, depending on where you live. But don’t forget that
even when you live in Mexico full-time, you will still have some ongoing
expenses in the States. Add to your estimated Mexican cost of living U.S.
mortgage payments, life and auto insurance, car registration, college tuition,
loans, and so on. Once you are settled in Mexico, you can reduce many of these
expenses. For instance, we were able to reduce the cost of health insurance by
replacing a high-cost U.S. policy for Barbara with an international policy of
equal quality, including coverage in the States, for about half the price.
Whether you’re insured or not, medical costs in Mexico can be as much as 75
percent less than they are in the United States.
A much-talked-about issue in Mexico is
inflation. While high inflation—almost 20 percent—makes life very difficult
for Mexicans, we who are living in Mexico on dollars are insulated against the
effects of inflation. But this is not always the case. The peso, which has been
steadily devaluing against the dollar (almost 15 percent in 1998), has been
stable for most of 1999.
Many foreigners claim that their cost of
living in Mexico actually goes down each year. The longer they live in the
country, the more they learn to live in a peso-based economy. They begin viewing
costs in a more Mexican way. When they first arrive, an item costing 100 pesos
seems cheap: “It’s only $10, let’s buy more!” But after a few years the
price of the same 100-peso item seems steep: “100 pesos, you’ve got to be
kidding!” This fact is certainly true for us; we live on $5,000 a year less
than we did five years ago.
We began tracking all of our expenses soon
after we arrived in Mexico. Every day we write down everything we spend in a
hardcover blank book. At the end of each month we—that is Barbara—add up our
Of course, it is impossible to know with any
accuracy what your new life will cost until you try it out. Obviously, if your
dream is to live in a million-dollar house in Puerto Vallarta with 10 servants
and a heated Olympic-size pool, life can get a little pricey (it will still cost
you less than it would in the States, however). But the majority of retirees
from the United States, living on pensions or savings, will be amazed at how
much further their money goes and how much higher the quality of their lives is
A word about lifestyle: Ask yourself how
important it is to maintain your current lifestyle. You must be seriously
considering changing it or you wouldn’t be reading this article. Not being
locked into your former lifestyle can allow you the freedom to move to Mexico.
It can also increase your options greatly and give you maximum flexibility and
liberation. Much about your new lifestyle will depend on your attitude, as well
as a realistic assessment of what you can afford each month. Maybe you will live
in a cozy house with a peaceful little garden and a small painting studio
instead of your current 5,000-square-foot showplace. You may have to drive your
car for a few extra years or take fewer vacations. But, so what—your entire
new life is a vacation! Or you may be able to afford a much nicer house in
Mexico than you could in the States.
When you first arrive in Mexico, renting
makes perfect sense. You can get a feel for the culture, town, and neighborhood
without making a long-term obligation. You can chat-it-up with longtime retirees
and get the inside scoop without tying up a lot of money in real estate. If you
have just sold your home in the States and are feeling flush for the first time
in years, you can invest in stocks or bonds and rent a place on the interest. It
is easy to find reasonable rents, and Mexican laws favor the renter, giving you
protection against weird and unscrupulous landlords. If you want to try another
part of the country, you can just pick yourself up like a turtle and move on.
There are a few downsides to renting, of course. You may have to deal with
steady increases in rent or wait forever to have a leak fixed.
If you feel more comfortable owning a home
or enjoy investing in real estate, this may be the perfect time to buy. Real
estate is appreciating rapidly in many parts of Mexico, including coastal areas
around Puerto Vallarta, Zehuatanejo, and Manzanillo; Quintana Roo; parts of
Baja; and inland towns like San Miguel de Allende and Chapala. There are still
many deals to be had. If you dream of owning a home near a palm-shaded beach, an
elegant colonial, or a small B&B, you may be able to afford it, even if you
don’t have the cash. Several U.S. mortgage companies have started lending
money on Mexican real estate. Ownership laws were changed during the recent
Salinas administration, making it as easy and safe to buy a home in Mexico as in
The IRS expects you to pay taxes on
“earned” income anywhere on earth and probably from outer space as well. If
you live and run a business in a foreign country, the IRS assumes that you are
paying taxes in that country and exempts the first $70,000 of profit (net after
expenses). This amount began rising by $2,000 a year, starting in 1998, and will
continue until it reaches $80,000. The $80,000 exclusion will be indexed for
inflation starting in 2008. You are required to pay a self-employment tax of
15.3 percent, and you are required to file a return if you earn more than $6,000
a year anywhere.
The capital-gains tax laws in Mexico are
more complex than those in the United States. The tax you pay on the sale of a
house can differ in different locations and under different circumstances.
Discuss this issue with your Mexican lawyer. You are expected to include the
sale of your Mexican home on your U.S. tax return. Any Mexican tax you pay is
considered by the IRS to be an expense, and it reduces your U.S. capital gain.
Filing as a foreign resident exempts you from paying state income tax and allows
you to put off filing your federal return until June 15, although tax owed is
due from April 15.
You will be amazed at the high interest
rates being paid to depositors by Mexican banks. For instance, Lloyd Asociados,
both a Mexican bank and an investment house, is now paying between 16 and 26
percent interest, depending on the type of account. The interest rate changes
daily, depending on the strength or weakness of the peso, the state of the Bolsa
(Mexican stock market), foreign exchange, and other factors. On some rare
occasions, the change is dramatic. After the devaluation of the peso in 1995,
interest rates shot up to over 100 percent for borrowers. Depositors were paid
over 90 percent interest. Those who had money in a peso account at that time
lost about 50 percent of its value, but regained ground as interest rates on
deposits climbed to over 90 percent. These astronomical rates dropped as the
economy strengthened, and by now many depositors have more than recovered their
Foreign residents debate whether it is
better to keep dollars in the States and bring them to Mexico as needed, thereby
taking advantage of a steadily devaluing peso, or to keep one’s savings in a
peso account in Mexico, achieving interest rates as high as 40 percent but with
the risk of another major devaluation. Barbara and I keep our savings in the
States and transfer to Mexico enough to meet our expenses here. Dollar accounts
are not permitted, ostensibly to stop drug-money laundering.
Handling common money transactions in Mexico
is relatively easy. Most foreigners have a peso account in a Mexican bank into
which they deposit funds from home when they need more money. They can write
checks on the account, just as in the United States, and all major banks have
branches throughout the country.
Less common transactions can be a nightmare.
Large checks to buy a house or land can sometimes take as long as six weeks to
clear. It helps to have a good personal connection with the banker.
While Mexican banks provide the usual
services, Lloyd Asociados, S.A. goes further. This is the most popular bank
among American and Canadian residents in towns where it has branches. Don’t
ask them to insure your good looks, though. This is not the Lloyd’s of London
that insured Betty Grable’s legs and Jimmy Durante’s nose! Lloyd is a
Mexican-owned organization, and, though it has many Mexican customers, it caters
to the needs of foreign residents, offering high interest, investment accounts,
and other services. Unlike the major Mexican banks, Lloyd allows transactions by
fax, phone, e-mail, or regular mail. It will pay household bills when you are
out of town, including employees’ salaries, and Lloyd’s insurance division
will cover your home and car. Lloyd has eight branches in Mexico, all in areas
with high concentrations of foreigners.
Banamex, Mexico’s largest bank, has an
interesting program—Programa Amistad (friendship)—aimed at foreign
residents. Our friends have found it convenient. They have a checking account at
Banamex’s U.S. branch, California Commercial Bank, and their U.S. Social
Security, pension, and other checks are deposited directly into it. Banamex
issues a checkbook and a debit card, which can be used to withdraw up to $200 at
any Banamex ATM in Mexico. Banamex claims the account can be opened only in
person at their Los Angeles, San Francisco, or Guadalajara offices, but a friend
opened an Amistad account in the San Miguel de Allende branch. Banamex’s main
office in Los Angeles is located at 2029 Century Park E., 42nd Floor, Los
Angeles, CA 90067.
We also have friends who never bring money
into Mexico. They make arrangements with a casa de cambio (money changer) to
cash personal checks drawn on their U.S. accounts. Almost all U.S. credit and
debit cards can be used at ATMs throughout Mexico—an easy way to get quick
cash at the best exchange rate. However, these machines have been known to run
out of money occasionally, especially on weekends in heavy tourist areas.
If you receive a monthly federal benefit
check, it will be sent from the Department of the Treasury in the United States
to the U.S. embassy or consulate in Mexico. You might look into the possibility
of having your check deposited directly into a bank account in the States or
If you own property or have a substantial
number of other assets in Mexico, you should look into drawing up a separate
Mexican will. An American friend, a lawyer practicing international law in
Mexico, tells us that a properly drawn U.S. will can cover assets in Mexico, but
to avoid confusion and tax problems later, it is wise to have a Mexican will
drawn up as well. Our friend handles such matters, and she recommends finding
someone who is familiar with the laws of both countries to do the job.
There can be some comical aspects to money
matters here. For example, Barbara was buying some handmade trinkets as gifts.
The price of each was 10 pesos. Assuming there would be a discount, she said,
“If I take 10, then what will the price be?” The vendor looked at her for a
few seconds and replied, “For 10 it will cost 150 pesos.”
“But why?” she incredulously asked,
“can’t I have a discount or at least pay 100 pesos for 10?”
“Because if you like them so much,”
replied the vendor with his own brand of logic, “you will pay more.”
Another friend once had a plant vendor come
to her door with petunias. He quoted a reasonable price, and our friend said
she’d buy the lot, all 20 of them. The man looked stricken. “But if you buy
them all, what will I do for the rest of the day?” he asked. From then on,
whenever he came to her door, he brought just a few plants and hid the rest in a
doorway around the corner. He wasn’t having his day ruined by this woman
Often foreigners find they are charged more
for certain things than Mexicans are, especially services such as plumbing and
electrical work. Even dentists and veterinarians sometimes charge us more than
they do Mexicans. At the market, you may see a local Mexican buying fruit and
vegetables for a few less pesos than you’re paying. It’s really up to you if
you want to make an issue of this practice. Having lived here many years, we
find we are no longer overcharged as much. If we are, we ask about it jokingly.
Usually the vendor (or electrician) will grin and lower the price a fraction.
Keep in mind that it is not just foreigners who are charged more than the
locals. Mexican tourists or weekenders from Mexico City, with their shiny cars
and expensive clothes, also pay higher prices. It’s a question of what the
market will bear. And, after all, most locals have many relatives and old family
friends who automatically get a reduction. The system is fair enough.
Tourists visiting Mexico invariably feel
that the peso is not real money. It is not unusual to hear a tourist ask a
shopkeeper or spouse, “How much is that in real money?” This feeling is
understandable because prices are low, and Mexican money does look a little like
play money, with the different denominations in different colors and some with
gold sparkles. We have seen tourists throw Mexican bills around like they were
playing Monopoly, happily overpaying and over-tipping waiters, vendors, and even
taxi drivers (usually not tipped in Mexico). Such behavior tends to widen the
gap between local and foreign-resident economies. It tends to increase prices in
general for foreigners, whether or not they are tourists. Most foreigners are
aware that they live in far more comfortable conditions than local Mexicans, and
some feel uncomfortable about the difference. Nevertheless, no one likes being
Locals generally expect foreigners to have
more money and are not at all upset about it. Their attitude for the most part
is, “Such is life.” I once heard a Mexican maid say, Dios les da el dinero a
los ricos, porque si no lo tuvieran, se moririan de hambre— “God gives money
to the wealthy because without it they would starve to death.”
However, foreigners flaunting their money is
offensive to every Mexican. But, then, it’s offensive everywhere, so use
common sense. If you run around spending as if pesos were play money, feeling
like a millionaire, your budget will soon fall flat. Used wisely, your money
will take you far and definitely give you a good life here. But don’t be
niggardly. Being closefisted is not politic in Mexico—in fact it’s downright
alien to Mexicans. Wealthy Mexicans tend to spend readily and usually with
generosity, and even poorer Mexicans are generous. Money is not hoarded, even by
rich Mexicans. If they have it, they spend it. Manana will somehow bring more.
Should you give money to beggars? That is
entirely up to you. Many foreigners have a favorite beggar whom they support.
Our own rule is that if the beggar appears genuinely in need or ill, and we have
some coins in our pockets and are in the mood, we give. If he or she is clearly
a drunk or a fraud, we ignore the person and walk past. The larger the city, the
larger the scam. So be astute in deciding who is in genuine need.
Children from poor families may see you on
the street and screech “Money! Money!,” holding out their small hands.
Again, it’s up to you whether or not to give, but we have often offered
children food instead of money. Sometimes they take it greedily; other times
they give us a dirty look and turn away.
One of the pleasures of life in Mexico for
most retirees is being able to afford household help. You can easily find a
gardener and a housekeeper to help clean, do laundry, baby-sit, and maybe even
cook. Most servants speak only Spanish, so you will also have a great
opportunity to practice the language. Our housekeeper, Gisela, is a wonderful
cook. She makes breathtaking chicken mole, and a spaghetti sauce that would make
your Italian grandmother salivate, and her green chicken enchiladas are to die
for. Gisela’s secret ingredient is oil. We have asked her to use less oil many
times, and she has cut back a little, but seems constitutionally unable to go
any further. Finally, we just switched to olive oil and gave in. Nowadays, she
cooks for us a few times a week, especially when we are in the mood for a great
old-fashioned, stick-to-your-ribs meal. Gisela is also a wonderful housekeeper
and has a great sense of humor.
The average weekly pay for a full-time
housekeeper/cook is about 300 to 400 pesos, depending on where you live, how
much you expect done, and length of service. We highly recommend that you pay
someone you like the high end of the salary range. Having a servant here is very
different than having one in the United States. After your housekeeper or
gardener has been with you for a while, you become the patron and have an
unspoken responsibility not only to the servant but also to his or her entire
family. If one of a servant’s kids gets sick and the family can’t afford
medicine, you will offer to buy it for them. When a servant’s daughter gets
married, you may be asked to pay for the ring or even the entire wedding. A
friend of ours recently did just that for her maid, who had become a friend and
confidante after five years of service.
The amount of time, energy, and money you
give to a servant is entirely up to you. But strict laws protect the basic
rights of domestic workers. For instance, when an employee leaves after many
years, he or she is legally entitled to severance pay equal to one month’s
salary for every year of service.
Even if you pay your employees a great deal
more than others might, if for any reason you insult them or cause them to lose
face, you cannot count on them staying with you. To your employees, respect is
far more important than money.
Basically, we and many other expatriates in
Mexico have come to realize that less is more. For one thing, we have so much
more than the average Mexican. For another, we find that things that were
important to us in our “past lives” just don’t matter as much anymore. Who
cares if you’re wearing last year’s (or even last decade’s) fashions? How
often will you need a necktie or three-piece suit? Who cares if the placemats
don’t match or that one of your wine glasses broke and you have to use a glass
We expatriates in Mexico have come to
realize that less is more.
Hector Ulloa, editor of Atencion
San Miguel (the weekly “gringo rag”), offers his observations about
mordita, a national custom:
Perhaps the most extended (and accepted)
form of corruption in Mexico is bribery—although most Mexicans do not see it
as bribery but as a “tip” or “gift.” The name itself suggests a share of
something—una mordida, a bite. Would
you like a bite of my apple? Although this kind of bribery is practiced all over
the world, it has become both an art and a nuisance in Mexico. It is a fact of
life—and as difficult to get rid of as cockroaches.
The line between bribery and tipping is a
thin one. If you drive into a gas station, the attendant will smile, fill your
tank, clean your windshield, and check your oil—alas, not for free. Along with
the cost of the gas, he will expect a small tip. If the tip is not to his
liking, he will frown and you may see him in the rearview mirror grumbling to
another attendant. Tips have always been common in restaurants; now they’re
common everywhere. Smiles can be bought, and people expect you to buy them.
One morning you show up at a government
office, ask to see the topmost official, and smile. The person behind the desk,
most often a young woman, will smile back and say, “He’s not here yet.”
Then, nothing else matters. It doesn’t matter if you see the official walk in.
The clerk will bluntly deny that he’s in or will say he’s busy, even if you
can peek through the partially open door and see the official looking out the
window. It doesn’t matter if you say you are the official’s best friend. It
doesn’t matter if you say the building is on fire. The clerk will smile and
continue filing her fingernails, saying “Can’t you see he’s not here?”
Next comes the magic. You smile and, with
apparent naiveté, say, “Is there some way I could see him right away?” and
flash a 20-peso note that you immediately hide inside a folded newspaper. Then
she will definitely smile back and say, “I’ll see what can be done,” as
she grabs the newspaper and pretends to be interested in the latest news about
Pakistan. Is this a tip? Is it bribery? Or is it simply “buying” your way
There are more obvious situations, like
skipping a red light and paying off the traffic cop. The officer will never say
the payment is bribery, of course. It is a “gift” or a “fee” for his
time. The longer it takes you to understand that you must pay, the higher the
fee. First the officer will give a long explanation about how you broke the law
and how he wants to help save your valuable time. Second, he will offer a simple
arithmetic problem: “If the fine is 100 pesos and half the fine is 50 pesos,
how much money do you have with you?” Third, he leaves the penalty “up to
you” and abides by whatever “your will is.” Fourth attempt—if nothing
has worked so far—he will threaten to impound your car and put you in jail.
Any advice, you ask me? It is probably
easiest to play the game. Smile and tell the officer that you understand you
broke the law and ask him for your ticket. Then take mental note of his badge
number and squad car or motorcycle number. As soon as you are on safe ground,
To this, Barbara and I add some practical
advice from a foreigner’s point of view: If the mordita seems reasonable, or
if you live in a small town where you and the cop will be seeing each other
again, pay the mordita and forget the whole matter. Reporting the bribe is not
worth the potential bureaucratic hassle. We would report the incident only if
there was no infraction and the whole thing was just highway robbery.
To get an idea how much you will save by
living in Mexico, note the price in Mexico of the items listed below (prices as
of January 1, 1999, in U.S. dollars):
|premium unleaded gas:
|regular unleaded gas:
|fancy three-bedroom house:
|utilities and basic phone service:
|basic cable TV service:
(two days a week):
|gardener (two days a week):
|bottled water (for two):
|head of lettuce:
||$2/dozen (for heaven’s sake)
in Mexico, 1st Edition, by Ken Luboff.
Copyright © 1999 Ken Luboff. Excerpted by arrangement with Avalon
Travel Publishing. $15.95. Available in local bookstores or click