In Oaxaca, a colonial city and tourist mecca, you'll pay as little as $3 to $4 for a decent lunch

For many foreigners, the romance of colonial Mexico is what draws them South of the Border. In Mexico’s many colonial cities you can enjoy modern life surrounded by sun-drenched patios and centuries-old churches and homes. Even better, you’ll have a lower cost of living in colonial Mexico than you would in the U.S. or Canada.

San Miguel de Allende, in Mexico’s Colonial Highlands, is one of the best-known of these colonial cities. It’s also probably one of the most expensive. Yet even in San Miguel day-to-day living costs can run 20% to 30% less than U.S. prices.

For instance, in a sit-down restaurant with white tablecloths and a couple of waiters to serve you, dinner for two with a drink and perhaps dessert will run $16 to $32, say friends who live there. That meal will also come with a pleasant ambience and possibly live music.

Depending on where you shop (in a big, deluxe supermarket like Mega Comercial or at the local market), local products like fruits and vegetables can cost as little as half of what you’d pay in the U.S. Gourmet items like imported cheeses and meat, on the other hand, tend to be around U.S. prices. The good news is that these gringo-style products are all available in San Miguel at specialty shops and at Mega Comercial.

In the Colonial Highlands, you’ll find day-to-day costs somewhat lower than San Miguel in cities like Guanajuato and Dolores Hidalgo. In Guanajuato—a state capital—you’ll also have access to U.S.-style warehouse stores like Costco and Sam’s Club (even a Best Buy for electronics).

You’ll also pay less for groceries in Oaxaca, a colonial city and tourist mecca in Southeast Mexico. Restaurant prices here run the gamut—this city is a foodie capital. You can pay as little as $3 to $4 for a decent lunch…or 10 times that for a blow-out dinner. (And it will be worth every penny.)

Prices for day-to-day living may be their lowest in southern Mexico—in colonial cities like San Cristóbal de las Casas, in Chiapas, and Mérida, in the Yucatán. In both cities you can pay pennies on the dollar for locally-grown fruits and vegetables in season. You’ll pay standard Mexican prices (which run about 25% less than U.S. prices pretty much all over Mexico) for processed foods like bread, yogurt, bottled drinks, and lunch meats.

But you’ll need heating for San Cristóbal’s winters—it’s high in the mountains. And you’ll need air conditioning, at least at night, in Mérida’s sweltering summers. Natural gas in Mexico is relatively cheap—a $20-tank of gas will last most couples a month or so. But electricity is expensive. If you use air conditioning or electric heat a lot, expect your bills to run at least 50% more than they do in the U.S.

Regardless of how you choose to spend your money in these cities, you’ll find plenty that comes for free…large, clean parks, free cultural activities—including concerts, dance recitals and plays—and an easy-going, gracious way of life.

If you’re in the market for a comfortable retirement retreat where the weather is pleasant all year, just a short flight away from the U.S., if you want to be able to get all the products and services you’re used to having at home, have plenty to keep you busy, and enjoy a cost of living that is a fraction of what you pay at home, then start your search in Mexico’s colonial heartlands.

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