City have won two of the last three Premier League titles and they also won the FA Cup in 2011 and the League Cup earlier this year.
They have failed to claim continental success, though, and lost their first UEFA Champions League match of the season 1-0 at Bayern Munich on Wednesday.
Neville – a former stalwart of City's arch-rivals Manchester United – said he believes Sunday's fixture against league leaders Chelsea could highlight their need for youth.
"With great teams you can reel off most of the starting XI without thinking. With Manchester City, nine of the Premier League-winning players roll off the tongue," Neville wrote in The Telegraph.
"But I wonder if the English champions are also now rolling towards the edge of decline as they try to capture the Champions League.
"Sunday's clash between Manchester City and Chelsea in Manchester is fascinating and could tell us which of the two teams is developing in the best direction.
"Chelsea's average age is 26.9. Man City’s squad is 28.9. In modern terms, that's old.
"I think [Chelsea boss] Jose Mourinho has adapted his squad cleverly in the last 12 months, selling Juan Mata and David Luiz for big money and then using the proceeds wisely.
"His team will have two more years longevity than City. The average age of City's squad is also the highest in the Premier League."
Neville – who was quick to praise City and their ability to win the Premier League – said the age of their squad leaves them in a potentially "dangerous position".
And according to Neville, coach Manuel Pellegrini has some key decisions to make.
"Make no mistake, City have been a great Premier League side," he added.
"The 'constants', as I call them, are easy to pick out. Joe Hart, Vincent Kompany, Pablo Zabaleta, David Silva, Yaya Toure, Samir Nasri, Sergio Aguero.
"Two championships in three years marks them out as a great English side who sit alongside the title-winning teams of Arsene Wenger, Mourinho and Sir Alex Ferguson.
"But just looking at them now, and where they are in their development, I feel this team is in a dangerous position.
"The value of those players will drop quite sharply in the next 18 months because everyone will know they are going over the edge.
"City are one of two teams who can take the Premier League title this year but Pellegrini and the board have some big decisions to make in the next 12 months if they want Europe's biggest prize."
City have taken seven points from their first four Premier League matches – five fewer than Chelsea.
