The 68-year-old had an expiring contract with the Bavarians and it was already announced earlier this season that he would have to make way for Pep Guardiola ahead of the 2013-14 campaign.
A number of recent reports suggested that he was one of the candidates to take Jose Mourinho's place as Real Madrid coach, but Heynckes has now made it clear that he will take time out instead.
"I told my wife last year that my plan was to fulfil my contract and then quit. I did not have any holiday last year and I've noticed in the past few weeks that I was close to my limits," Heynckes said at a press conference.
"Other clubs showed an interest in signing me. There were some rich clubs, where money is not an issue, and there were clubs where you can enjoy yourself. And there was a big team that's not at Bayern's level at the moment," hinted the veteran trainer at Madrid interest.
"I am going to enjoy a holiday now, though. I will not be coaching either abroad or in the Bundesliga next season.
"Is this a definite retirement? I don't like to use the word definitive as you never know what will happen. But there's a life after your professional life."
Bayern chairman Karl-Heinz Rummenigge, meanwhile, hopes that Heynckes will return to the club in another role at some point in the future.
"The door will always be open for Jupp at Bayern. He deserves a break more than anyone else. We accept his decision.
"Once his holiday comes to an end, Uli [Hoeness] and I are keen to have a chat with Jupp to see whether he'd be open to a return in another position."