In saving, think 'margin of safety'

Warren Buffett's mentor, the legendary investor and market scholar Benjamin Graham, wrote that when challenged "to distill the secret of sound investment into three words, we venture the motto, Margin of Safety."

Those are wise words for all seasons. Even if the recovery gathers momentum and the unemployment rate trends lower, households will remain under pressure to create their own margins of safety by saving more and borrowing less.

Unfortunately, over the past three decades with the rise of the 401(k) plan, savings has become synonymous with setting money aside for retirement. For many of us at work or at home with an IRA, saving is something to be tapped in a distant time when we're older. We save in special tax-deferred accounts and, in essence, we can't get access to the money without paying a penalty.

I think it's time to break the grip that retirement has on our approach to savings. Now, don't get me wrong. It's important to fund the retirement savings plan at work or the IRA at home. It's the financially prudent thing to do.

But savings also should be geared toward funding transitions over a lifetime. Retirement is only one of those shifts in activity, although it's a major one. Saving isn't about old age. Saving should be about funding career and lifestyle shifts throughout our lifetimes.

This perspective came home to me in a series of conversations I had with Marc Freedman, head of the San Francisco-based nonprofit Civic Ventures. The organization is dedicated to encouraging folks to launch second and third careers with an eye toward giving back to the community.

"The new goal is to have sufficient assets to liberate yourself to work," he says. "You save not to have freedom from work, but the freedom to do the kind of work you want."

Some of the money could go every month into a savings account, certificates of deposit, Treasury bills, and the like. You could load up on tax-deferred I-bonds, the inflation-protected savings bond. Some money could regularly be invested in a broad-based stock index fund, such as the Wilshire 5000 or the Standard & Poor's 500. The mix of relatively safe and riskier savings starts out small, of course, but it accumulates over time.

The savings can be tapped at any time without penalty to fund a career change or to pay for a medical emergency. It's a simple strategy that gives you flexibility. And if more and more people embrace this approach toward saving, then the mantras "less is more" and "enjoy the good things in life" will become as familiar as the slogans "Charge it" and "Do you take credit?"

A savings program like this gives you a measure of control in an uncertain world.