Spearing spent 16 years at Liverpool and broke into the club's first team, but failed to realise his full potential and spent the rest of his career in the lower leagues.
According to The Telegraph, Spearing will make a return to Liverpool's academy in an innovative developmental role created by youth director Alex Inglethorpe.
Spearing, now 33, will add experience to the youth ranks and provide support for players on the cusp of breaking into the first-team squad.
A former Under 18s skipper, Spearing will also assist in coaching with the younger age groups at the club.
Spearing left Liverpool in 2013, having joined the club as a 16-year-old in 2004 and most recently had a two-year spell at Tranmere Rovers before leaving at the end of last season.
He made 55 appearances for the Reds' first-team squad and has already planned for life after playing by combining a coaching career with playing in the lower leagues.
It is unclear how many games Spearing will play for Liverpool's Under 23s but his arrival will be welcomed by many at Liverpool, as he makes a romantic return to Merseyside.
The trend of players returning to clubs in dual roles is not uncommon. Manchester United re-signed former Hull centre-back Paul McShane last year in a similar initiative despite him failing to turn out for the under 23s.
Southampton also followed the same trend when they gave defender Ollie Lancashire the chance to take up a similar role at St. Mary's.
Spearing would become Liverpool's third signing of the season after the acquisition of Striker Darwin Nunez from Benfica and Fabio Carvalho from Fulham.
Aberdeen's Calvin Ramsey looks set to make his move to Anfield official, whilst Sadio Mane is on his way to Bayern Munich.