At a House Budget Committee hearing, Greenspan said the current deficit, which is projected at a record $521 billion this year, will worsen dramatically once the baby boom generation starts becoming eligible for Social Security benefits.
"This dramatic demographic change is certain to place enormous demands on our nation's resources -- demands we will almost surely be unable to meet unless action is taken," Greenspan said. "For a variety of reasons, that action is better taken as soon as possible."
He suggested pushing up the retirement age and offering less generous adjustments to future payments.
President Bush, when asked by a reporter to comment on Greenspan's testimony, said he thought that cuts to Social Security benefits should be off-limits to those at or near retirement age, according to Reuters.
"My position on Social Security benefits is this: Those benefits should not be changed for people at or near retirement," he said.
Congress is unlikely to take up the controversial issue of cutting Social Security in an election year.
Greenspan, who turns 78 next week, said that the benefits now received by current retirees should not be touched, but he suggested trimming benefits for future retirees and doing so soon to allow them to make adjustments in their finances to better prepare for retirement, the Associated Press reported.
Even with the retirement age for Social Security set to rise to 67 from 65 in the next two decades, the number of years people spend in retirement relative to their working years will rise because Americans are living longer, Greenspan added.
"I am just basically saying that we are overcommitted at this stage," he said, adding that the government should tell people about to retire what they can expect and not promise more than it can deliver, according to the AP.
While the country is currently enjoying the lowest interest rates in more than four decades, Greenspan warned that the current situation will not last forever. Financial markets will begin pushing long-term interest rates higher if investors do not see progress being made in dealing with the projected huge deficits that will occur once the baby boomers begin retiring, he said.