Live Well in Mexico

MONEY MATTERS

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 lifestyle?

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 expenses.

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 in Mexico.

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.

Buy or Rent?

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 States.

Taxes

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.

Banking

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 losses.

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.

Federal Benefits

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 even Mexico.

Wills

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.

Funny Money

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 again.

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 gouged.

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.

Hiring Help

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. 

Shifting Perspectives

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 jar instead?

We expatriates in Mexico have come to realize that less is more.

Mordita—The Bite

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 around?

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, report him.

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.

Bargains Galore

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):          

From Live Well 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 here.