Cullen, 31, has called time on all all provincial and club rugby commitments, but will return to New Zealand in August.
The full-back, rated as one of the best ever, played for the final time for Munster on April 30, helping the Irish side to a 15-7 win over Newport Gwent Dragons.
Although he admits the lure of extending his playing career was a strong one, he cited injury problems as the primary reason for his decision.
"I've hung up the boots for good," Cullen said. "My mind is fresh and feels like I could sign another four-year deal and keep going but there comes a time when you have to be a realist and I know my body has had enough.
"I can't remember the last time my ankles and knees didn't ache. And at the back of my mind I'm always worried that I might be a tackle away from injuring the shoulder again.
"So, in the end, it's an easy decision to retire.
"I will miss a lot of things about the game but I can't sign a new deal knowing my body has had it."
Cullen holds the All Black Test try-scoring record, with 46 touchdowns from his 58 appearances for New Zealand and signed for Munster in 2003 after being left out of John Mitchell's World Cup squad.
He scored 14 tries for the club but made only 44 appearances in a injury-hit spell.
"I have loved every minute of my time in Ireland - apart from the injuries," Cullen said.
"The club and supporters have been terrific to me but I can't help feeling that I have let them down. When I signed in 2003 I felt like I could reproduce the type of performances I was able to put on for the All Blacks.
"But three shoulder operations put paid to that. Munster will always hold a special place within me. The toughest thing about retiring is walking away from Thomond Park. I just wish I could have done more for the club, my team-mates and Munster's great supporters."
Cullen will return to New Zealand in August to take up business interests.