Having seen their north-west neighbours clinch their eighth Premier League title and both United and Arsenal progress further in the Champions League the Reds did not get past the first round the Anfield boss knows he still has much to do.
A lot will depend on Sunday's winner-takes-all clash at Stamford Bridge where victory over Chelsea will guarantee a return to Champions League football. However, failure means the lesser rewards of the UEFA Cup.
Liverpool have not won at Stamford Bridge since the 1989-90 season but they must turn around that statistic if they are to enjoy the £20million riches the Champions League will bring, which would also help team-building for next season.
"We must keep going, we are young still and the average age is 25, but if you asked me how far we are away from Manchester United I would have to say two to three years behind them," Houllier said.
"United are a good side, we accept that and appreciate it. But that's why beating them in a cup final this season should be something that is enhanced."
Houllier does not accept totally that United's greater resources as the richest club in the world give them the edge. "Arsenal boss Arsène Wenger said that Manchester United can only play 11 players whoever they buy," he added. "Their resources didn't contribute to us probably losing 10-12 points we could easily have won. Then we would have been in the competition for the title. That's why you have to be creative and more consistent as a team."
Ironically, Houllier believes the turning point of United's triumphant season was winning at Anfield in December.
Houllier said of the day when Jerzy Dudek's horror show handed United a 2-1 victory at Anfield: "It was the turning point for them and the turning point for us." Liverpool then went on a seven-match league run without a victory, squandering 17 points in a sequence which wrecked their own title dreams.
Alex Ferguson often refers to United's derby day humiliation at Manchester City three weeks earlier in November, when he threatened to let fans into the changing room to show their anger at the 3-1 defeat, as their nadir.
But Houllier added: "When we played Manchester United at home we were five points ahead of them.
"Their win at Anfield probably put them back on track, that was the turning point of their season and ours as well. That game was a shock. In many games we have made stupid errors that cost us points and that was one."
Houllier faces an anxious wait to see whether Dietmar Hamann's shin injury clears up in time for him to feature against Chelsea.
He has already ruled out Vladimir Smicer (calf) but revealed Steven Gerrard would be fit after a hip problem.
"Didi is a major doubt, I'm not going to fool anyone, he's facing a lot of treatment," added Houllier.