The former Anfield star says manager Brendan Rodgers will have a busy summer as question marks remain over several players.
The Reds were beaten 2-1 by Aston Villa in their FA Cup semi-final clash on Sunday afternoon, ending any hopes of silverware this year.
They also look likely to miss out on Champions League football as recent losses to Manchester United and Arsenal have left them chasing Manchester City who occupy the fourth and final qualification spot.
Now, McManaman says the club will have to refresh the squad to be able to compete next season.
“I think Brendan will know he’ll have to change five, six or seven and refresh the squad and bring new players in,” he said.
“I’d certainly bring in another centre forward, I don’t think in that area Liverpool are anywhere near good enough to challenge for the Premier League and or in Europe. And I’d be bringing in defensive players as well, [while] you’re going to have to bring a midfielder in.”
The former Liverpool star also believes that the manager will have learned a lot about his squad after a difficult season on Merseyside.
The Reds sold Luis Suarez to Barcelona in the summer and recruited heavily, with several large fees involved, although only the likes of Emre Can and Alberto Moreno have proved to be good acquisitions.
Others, such as Dejan Lovren and Mario Balotelli, have so far proved to be expensive failures for the manager and McManaman says there are question marks over the futures of these players at the club.
“In this first year he’ll have looked at players and thought, I can rely on him, I can’t necessarily rely on him but I can’t rely on him,” he added.
“I think some of the players he has brought in he will have thought have done well, Emre Can looks a good player. There’s other players where there’s question marks.”