By Martin Crutsinger
The Associated Press

JACKSON, Wyo. - Federal Reserve Chairman Alan Greenspan said Friday the country will face "abrupt and painful" choices unless Congress acts quickly to trim Social Security and Medicare benefits for the baby-boom generation.

Greenspan said the country must face up to "some tough policy choices."

Even under the most optimistic economic assumptions on growth and productivity, baby boomers will not enjoy the level of benefits their parents got, he said.

Speaking at a two-day conference sponsored by the Kansas City Federal Reserve, Greenspan said policy-makers must address the looming crisis in Social Security and Medicare before the 77 million U.S. baby boomers begin retiring later this decade.

"We owe it to our retirees to promise only the benefits that can be delivered," he said.

"If we have promised more than our economy has the ability to deliver ... as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels."

And he warned, "If we delay, the adjustments could be abrupt and painful."

"Curbing benefits once bestowed has proved difficult in the past," he noted, so the government must be careful about enacting any new benefits. Congress last year, at President Bush's urging, passed a new prescription drug benefit expected to cost more than $540 billion in the next 10 years.

Greenspan suggested one possible fix would be to increase the retirement age for receiving full benefits. It is already scheduled to rise from 65 to 67. Greenspan has suggested that the retirement age be continually adjusted to reflect ever-rising life expectancies. He has also proposed trimming the annual cost-of-living adjustment retirees receive because the current Consumer Price Index overstates inflation.

Back in 1983, Greenspan chaired a commission that rescued Social Security during an earlier funding crisis.

And starting last February, he has delivered a series of warnings about the looming crisis in Social Security and Medicare, which along with soaring budget deficits are likely to be the biggest economic challenges in the next four years.

However, the government's two largest entitlement programs have received little attention in the presidential race because neither Bush nor his Democratic challenger, John Kerry, wants to dwell on financing problems that present painful choices.

Bush favors giving younger workers the option of putting part of their payroll tax into personal retirement accounts. Kerry opposes the plan for partial privatization.

In the firestorm that erupted over Greenspan's earlier comments about trimming benefits for baby boomers, Kerry rejected the idea of cutting benefits while Bush said benefits "should not be changed for people who are at or near retirement."

While the United States, Europe and Japan are seen as facing the biggest difficulty financing baby-boomer retirements, International Monetary Fund Deputy Managing Director Anne Krueger said developing countries will also face problems with aging populations. She said countries such as India and Brazil must "take remedial action now to establish much sounder fiscal positions" to cope with rising pension costs.

Another speaker, James Poterba, a Massachusetts Institute of Technology economics professor, said his research showed one dreaded fallout from the baby-boom generation's retirement was unlikely to occur - an "asset market meltdown" as they sell their stocks to finance their retirement. Poterba said the wealthy, who will not need to sell, own a large share of financial assets.