Camino Reality : The Right Financial Road Will Take Couple to their Dream Destination--a Life in Mexico

When Rafael and Merry Lopez Macedo look out the window of their Newport Beach apartment, they envision the home of their dreams. Not in Newport Beach, but in the seaside community of Puerto Vallarta--a town not unlike the one where they met and fell in love.

The couple enjoyed a whirlwind romance while serving as sports instructors for Club Med in Huatulco, a small beach town on the southern tip of Mexico. They were married a year ago in February and can often be seen biking or in-line skating near a local beach. They’re happy enough here, but eventually they’d like to settle down in Rafael’s native Mexico.

Both Merry, 34, and Rafael, 28, say they prefer the slower pace of life south of the border. They want more than anything to rear a family near Rafael’s relatives, a close-knit bunch who live in Mexico City.

“The family stays together in Mexico,” says Rafael, adding that he’s baffled by the American practice of sending children away to college at 18 and never expecting them to live at home full time again.

But the pair’s finances haven’t caught up with their dreams. If they want them to come true sooner rather than later, they’ll have to count on working in the United States until they have enough saved.

The couple is mostly living on Merry’s $36,000 annual salary as an insurance claims adjuster. Rafael, a Mexican-trained chemical engineer, has been unable to find a permanent position in that field since moving to the U.S., so he works sporadically as a sample tester for an environmental firm, earning $12 an hour.

Their only savings are the $1,000 in their joint checking account.

Their goal: Save about $200,000 to build an oceanfront home in Puerto Vallarta or in their second choice, Vera Cruz. They wonder if they will ever be able to sock away that much before they reach their retirement years.

“If we could bottle our love, we would be very wealthy, but unfortunately it’s not that easy,” Merry says.

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The Lopezes are both closer and further from their goal than they think, says Judith Martindale, a fee-only certified financial planner based in San Luis Obispo.

On the plus side, the two have excellent financial habits.

Despite living mainly on one income, they have no credit card debt. They own one car. Merry rides her mountain bike to the office every morning, taking a shower there before sitting down at her desk.

Rafael avoids expensive long-distance phone calls to his relatives, instead writing letters and going through the Internet to communicate with his family.

When Martindale marveled at how the couple could maintain such discipline, Merry had a one-word answer: “Rafael.”

“Before I left for Mexico, I was earning close to $45,000 [annually] and had no savings,” she said. “I’ve changed my priorities. Now I enjoy eating at home and staying at home, not dining out in restaurants.”

Although their insistence on avoiding debt is to be commended, Martindale said, it has left them with a paltry savings account. For instance, the two put any extra money they got last year into paring down their car debt. They now owe a little more than $3,500 on the $14,000 loan for their 1995 Jeep Wrangler.

“If anything goes wrong, Merry and Rafael are $1,000 away from living on the street,” Martindale pointed out. Planners advise clients to pare down debt ahead of schedule only when adequate emergency savings are in place.

Still, the couple’s ability to live on one salary augurs well for carrying out their long-term savings strategy, Martindale says.

Rafael believes an entry-level job could pay about $35,000 annually. So once Rafael finds permanent employment, Martindale said, it should be relatively simple for the couple to begin putting aside at least $1,000 a month.

Based on this scenario, Martindale devised a strategy for the couple to follow, one that could land them in Puerto Vallarta in less than a decade.

“Rafael speaks lovingly and longingly of Mexico. I suggest they devote all their efforts toward saving for a move to Mexico as soon as possible,” the planner said, adding that it’s rare that she advises anyone to pass up the benefits of a 401(k) plan like the one Merry’s firm offers.

Martindale urged the couple to build up their emergency savings until they have at least $3,500--about 10% of Merry’s gross annual income--before they address other financial concerns, such as paying off the loan balance on the car.

Martindale agreed with Rafael’s statement that his job search has been hampered by the fact that all his professional contacts are in Mexico. She suggested that he work with someone to perfect his resume- and cover-letter writing skills, begin networking by joining professional organizations, and that he perhaps enroll in higher-level classes in his field.

Once Rafael finds full-time employment, Martindale said, the couple will probably be able to save from $1,000 to $1,500 a month. If they save $1,000 per month and get a 10% average annual rate of return, they will have $75,000 in five years, $140,000 in eight years and $191,000 in 10 years. Monthly savings of $1,500 would net them $150,000 at the end of six years and $200,000 in less than eight.

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However, it’s likely that it will cost the couple less than they think to move to Mexico and build a home there. (Mortgages are rare in Mexico, so anyone who wants to own a home there must have all the money upfront.)

Loujean LaMalfa, publisher of the newsletter Retire in Mexico, estimates that a three-bedroom, two-bath home in Puerto Vallarta can be expected to run between $150,000 and $170,000 in today’s dollars for both land and construction costs. The same house near the water in Vera Cruz could cost less, between $100,000 and $120,000. The actual cost 10 years from now, of course, could be more--or less--depending on inflation and currency values.

The couple plan to begin a family in the next two years, and they were worried that children might cause a big dent in their savings plan. But Martindale assured them that their excellent financial habits and the fact that they have a large number of friends who can offer children’s hand-me-downs and other support should mean those fears will be unfounded.

When it came to discussing how to invest their savings--that is, money beyond their emergency fund--the couple described themselves as “moderate to conservative” investors. Martindale therefore suggested that they start by investing in an index fund--that is, a mutual fund designed to mimic the performance of a benchmark such as the Standard & Poor’s 500 index. Since it will take at least six years to save enough money, Martindale suggested a moderately risky stock portfolio. If a bear market hits when they are ready to move, she said, they probably should not cash out until the stock market recovers.

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If the couple is worried about risk and wants a more predictable timetable, Martindale said, they should put a portion of their funds in long-term certificates of deposit or money market funds.

Martindale recommends that the couple invest in a mutual fund such as the Vanguard Index 500 (five-year average annual return: 17%) or the Fidelity Market Index (16.8%) until they reach $25,000. Then they should add the Schwab 1,000 (five-year average annual return: 16.2%), an index fund investing in largest 1,000 publicly traded U.S. companies. After reaching $25,000 in that fund, they should add foreign stocks to their portfolio, through a fund such as Vanguard International Equity Index--European Portfolio (14.2%).

Helaine Olen is a Los Angeles-based freelance writer. She can be reached on the Internet at holen@aol.com

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This Week’s Make-Over

* Investors: Rafael and Merry Lopez Macedo

* Ages: 28 and 34

* Occupations: Merry is an insurance claims adjuster; Rafael is seeking permanent full-time employment as a chemical engineer

* Gross annual income: About $36,000

* Financial goal: To save enough in 10 years to be able to build a home in a Mexican coastal town and live there

Current Financial Picture

* $1,000 in savings, kept in checking account

* Owe $3,527 on car loan

Recommendations

* Increase emergency savings to $3,500--about 10% of couple’s current gross annual income--and place it in a money market account.

* Once Rafael has a full-time job, the couple should be able to put aside between $1,000 and $1,500 per month to be invested in mutual funds.

Recommended Portfolio Choices

* Vanguard Index 500 (800) 662-7447

* Fidelity Market Index (800) 544-8888

* Schwab 1000 (800) 526-8600

* Vanguard International Equity Index-European Portfolio (800) 662-7447

Meet the Planner

Judith Martindale is a fee-only certified financial planner based in San Luis Obispo. She is co-author of two financial books, “52 Simple Ways to Manage Your Money” and “A Woman’s Guide to Retirement Planning.” She specializes in advising middle-income families and in divorce planning. She has been named one of the top 200 financial planners in the U.S. by Worth magazine.