The 31-year-old World Cup winner, who is available for the Wellington Hurricanes' Super Rugby clash against the ACT Brumbies on Friday after recovering from concussion, has a clause in his contract allowing him to take some time away from the game.
"The NZRU are keen for me to hang around for a bit longer," Smith told TVNZ in Tauranga at an All Blacks training camp.
"We both agreed that, if I was going to play at the next World Cup in two to three years, I would need a longer break and not be playing 10 months every year."
The All Blacks play three Tests against France, England and Ireland on their end-of-year tour to Europe and Smith had said previously he was finding it tougher to play Super Rugby and be available for up to 14 Tests each year.
He will be available for the three-Test series against France next month and for the All Blacks' defence of the southern hemisphere's Rugby Championship against South Africa, Australia and Argentina.
All Blacks coach Steve Hansen said he supported the 66-Test veteran's decision.
"I'd rather he went on a sabbatical than retire," he told the New Zealand Herald.
"There's still a lot of rugby left in him, it's just an indicator that players need to step out, get that decent break, get their bodies right."
The New Zealand Rugby Union has structured several players' contracts to allow them a break from rugby. Captain Richie McCaw is currently unavailable until the end of June.
Fly-half Daniel Carter also has a sabbatical clause in his contract and has indicated he may exercise that in 2014 in order to try to extend his career through to the All Blacks' World Cup defence in England in 2015.