Despite lifting the Carling Cup and reaching the FA Cup final during the last campaign, the Reds missed out on Champions League football for the third consecutive year.
"The target this year is a top four finish," Carragher told talkSPORT. "It's just so important.
"We won a trophy and got to a final of the FA Cup but it's still not good enough. A couple of years ago we were in it every season, there were only really four teams in the league that that could get there and now there's six."
The Merseysiders begin the new Premier League season at West Bromwich Albion on Saturday.