Do I need a retirement plan if I already have an Afore?
Having an Afore, Mexico's mandatory retirement savings account, is a good start, but for many people it isn't enough to retire with the lifestyle they want. Here I explain how the two differ and how they work together.
Your Afore: mandatory and tied to your job
Your Afore receives contributions from you, your employer and the government while you hold a formal job. It's an important foundation, but it has two limits: it depends on how many years you contribute and on your registered salary.
If you're self-employed, have changed jobs several times or went through periods without contributing, your Afore probably holds less than you think. You can check your balance and your projection in the AforeMóvil app.
A retirement plan: voluntary and tailored to you
A personal retirement plan is savings you control: how much you put in, how often and for when. It doesn't depend on your job, so it works the same whether you're an employee, a freelancer or a business owner.
Many plans also include protection for your family if something were to happen to you, which an Afore on its own doesn't offer in the same way.
The differences at a glance
| Afore | Retirement plan | |
|---|---|---|
| Is it mandatory? | Yes, with a formal job | No, it's voluntary |
| Who contributes? | You, your employer and the government | You |
| How much? | Based on your salary | Whatever you decide |
| Protection for your family | Limited | Usually included |
| If you're self-employed | Only if you contribute on your own | Works the same |
What about taxes?
Contributions to personal retirement plans can be tax deductible on your annual return under article 151, section V, of Mexico's Income Tax Law (Ley del ISR): up to 10% of your taxable income, capped at five annual UMA (the reference unit Mexico uses to set legal amounts), as long as the money stays in the plan until age 65 (or in case of disability or incapacity).
Not every plan meets the requirements for this deduction. I'll tell you which ones do, and I recommend confirming it with your accountant.
So, is it right for me?
If you want to retire with an income similar to what you have today, you'll most likely need more than your Afore. A retirement plan doesn't replace it: it complements it. And the sooner you start, the less you need to put in each month.