This is a partial transcript from "Your World with Neil Cavuto," April 27, 2006, that was edited for clarity.

NEIL CAVUTO, HOST: The folks at AARP were fired up over a discussion we had earlier in the week over the organization's decision to now market mutual funds. This is the same AARP that appeared dead-set against the president's plan to allow a portion of Social Security funds to be invested in the stock market. So, was that hypocritical?

Not according to my next guest.

Here now from the AARP is Nancy Smith. Nancy is a vice president of investment services for AARP Financial.

You and I were kind of nuancing the nuances, but it appears you're being a hypocrite.

NANCY SMITH, VICE PRESIDENT OF INVESTMENT SERVICES, AARP FINANCIAL: Not at all. I just don't know where you get that, Neil.


CAVUTO: Well, here's where I get it.

The AARP position on the president's plan was that Social Security, as you said, was an annuity and it shouldn't be invested in the risky stock market.

SMITH: Right. People need to count on it for their lives once they get retired. It's the one thing that you can say, no matter what else happens to my other investments, at least I will have Social Security there every month for as long as I live.

CAVUTO: Even though it's broken?


SMITH: And you don't want to change it. You don't want to — well, the issue of how to fix it is a completely different issue. But what I'm getting to is that the pundits you had on your program — I know you weren't there a couple days ago — they spread so many misrepresentations about AARP and what they were about that I'm glad you invited me on to set the record straight.


CAVUTO: All right, let me tell you what was said. Here — at the time, the AARP position on the stock market was expressed by John Rother a policy director, who said: "Partial privatization of Social Security would risk a rerun of the nation's experience with 401(k) accounts, where a majority of people take money out prior to retirement."

Now, it's bad for the government to do that, but it's OK to the AARP to do it?

SMITH: You're missing the whole point.

What AARP stands for is to say, for every American, when you retire, you're going to want to make sure that you have at least some money to cover your bills, and that money is there no matter what happens in the market.

The other thing AARP is saying and AARPFunds.com is saying is, in addition to your Social Security, you're going to want to invest money for your retirement, so that you have more to spend. And for many Americans, who go to sleep at night worried about, what am I going to do if I live for 30 years in retirement, then you're going to need...

CAVUTO: Nancy, for a lot of people, Social Security is it. That's all they have.

So, what's to stop these people from saying, all right, I'm 40, 50 years old; I think the market, over time, is going to give me a better return?

I'm not saying all the Social Security dough, just part of the dough invested in the market. Now, you were dead-set against that. Yet, your organization now is touting these funds. So, methinks that you knew you were planning this with the funds. You didn't want competition from Uncle Sam. You want your cake and eat it, too. Tell me I'm wrong.

SMITH: You are wrong. I hate to break the news to you, but you're very, very wrong.

What AARP is trying to do is simplify investing by offering three asset-allocation funds, that you get an entire portfolio in one fund.

CAVUTO: I think it's a great idea.


CAVUTO: Nancy, I think that's great. I'm not against what you're doing.

SMITH: Oh, that's great to hear.

CAVUTO: I'm just saying, why not take Social Security, part of that money, give them the same fund choices, and let people decide, especially younger people, who are not too confident in Social Security's future, and give them the same thing you're telling your members?

SMITH: OK, Neil, but what happens if you make a mistake, and you get your private account money, and you make a mistake, and you don't have that money to count on when you retire? This whole debate...

CAVUTO: What's a bigger threat now, Nancy, having that money or losing it altogether in a system that has fewer people paying in for more people taking money out?


SMITH: It's a bigger risk for people to give up something that is a sure thing.


CAVUTO: It's a bigger risk — it's a bigger risk, Nancy, not doing anything.

SMITH: Well, we will just have to agree to disagree about that. But the truth of the matter...


CAVUTO: But you are going to make money on these funds, the same opportunity you wouldn't give the government to fix a program that's broken.

SMITH: Well, let me tell you this. What AARP does in their association with AARP Funds, they're getting $5 for every $10,000 that's invested in these funds. And that money, when it goes to AARP, gets put right back into programs for people who are over 50.

CAVUTO: Nancy, you're misunderstanding what I'm saying. I love what you're trying to do for older folks, 50 and over. I'm getting darn close.

SMITH: Oh, really?

CAVUTO: But here's where I think you're being a disingenuous and maybe a hypocrite.

The fact is that Social Security — and there are a variety of ways to try to fix it, prop it up. We could hike taxes in the upper income. You could demand more contributions. The fact of the matter is, though, that there are other options on the table, including allowing younger retirees or those further from retirement to take some of that money and invest it in the same type of funds you are affording your members.

Why should this be the elite province of AARP, rather than all Americans?

SMITH: Well, first of all, can't the government decide to put some of that money into, let's say, the stock market or other investments that's in the trust fund? I mean, what you're doing is, you're shifting risk to the individual. And the great thing about Social Security...


CAVUTO: I would be open to that. You know what, Nancy? I would be open to that.

I'm just saying, you acted, and your organization acted, like the stock market was this huge parlor game when, in fact, your very organization is saying, you know what? It's not a parlor game. We like it.

SMITH: Neil, you should take that ad that you showed a couple of days ago that talked about this very issue, and you should have looked at it and see what we said a couple sentences later, which was, there is a place for risk in a retirement plan.

CAVUTO: Absolutely. But you didn't apply it, Nancy.


SMITH: Now, I want to ask you...


CAVUTO: Nancy, here, you're lying.

SMITH: That's not true.

CAVUTO: You didn't apply it, because you didn't apply it to Social Security.

SMITH: That's not true. That's totally false.

CAVUTO: You said Social Security was the safe part of it, that there are winners and losers in stock market terms. Do you really want them to become retirement terms?

SMITH: And what is the second sentence? Let's enlarge that ad and read the second sentence in that.

CAVUTO: Do you want that or no?

SMITH: Listen, what we want is, we want people to have more money to spend in retirement at the end of the day. That is all we want.

CAVUTO: No, no, no. You want more money for people to invest in your funds but not to do it in Social Security.

SMITH: We would be delighted if people invested wisely and prudently in these funds that we have created, because...

CAVUTO: You want them doing it through your funds, and not at Social Security. And that, I think, is a disservice to the American people.

SMITH: No, it's not.

CAVUTO: It's a disservice to the American people. You want the AARP to profit off something that you won't allow Social Security recipients to do.


SMITH: This is what you should do: You should talk to a good financial planner. And anybody will tell you, when you look at what you're going to need in retirement, you're going to want to look at covering your basic needs with something like an annuity.

CAVUTO: On that, we agree.


CAVUTO: On that, we agree. But why should you trap Social Security?

SMITH: How does an annuity work with taking risk in the market? I don't see it, Neil. You better bone up on this.

CAVUTO: You don't know — wait a minute. You don't know that annuities can invest in the market?

SMITH: Well, of course they can.

CAVUTO: You're oblivious to that?

SMITH: But we're talking about a fixed immediate annuity. We are talking about something...


CAVUTO: Nancy, here is what I think.

I think what you're doing is saying one thing for AARP members and another thing for the American taxpayer. And here's the problem. The American taxpayer is getting screwed and not going to have enough money for retirement, because you're lying to them about the state of Social Security.

SMITH: We are not lying. And I think I'm going to have to be on this show every week to rebut every lie that comes...


CAVUTO: You know what I would like you to bring next time, Nancy? Something called facts.

SMITH: Well, that's what we had, and that is what we have plenty of, and that you apparently don't.

CAVUTO: I will steal you back. But, Nancy, I disagree with everything you said.

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