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Salo, who ended his NHL career last year when he signed with Swedish Elite team MoDo, played 10 seasons with the New York Islanders, Edmonton Oilers and Colorado Avalanche, and led Sweden to the 1994 Olympic gold medal.
"It's been a fantastic time," Salo told reporters in Ornskoldsvik. "I only have positive memories.
"I no longer have the right motivation," he said.
MoDo, without injured superstar Peter Forsberg, was eliminated by Farjestad in the league quarterfinals on Monday.
Salo, who recently turned 34, still had one year left on his contract with MoDo, but said his lingering hip problems made the decision easier.
"That's something that's followed me practically throughout my whole career, and something I've learned to live with," Salo said. "But the problems and the pains haven't exactly gotten better with time."
Salo had the starring role in some of Swedish hockey's best -- and worst -- moments. He became a national hero after helping Sweden beat Canada in a penalty shootout in the 1994 Olympic final at Lillehammer, Norway, making a spectacular kick save on Paul Kariya's last penalty shot.
He also allowed an embarrassing goal from near mid-ice in the 2000 Olympics quarterfinals, giving Belarus a 4-3 win and Sweden one of its most stunning losses.
Salo spent most of his NHL career with the Islanders and Oilers. He retired 210-225-73 in 526 career games with 37 shutouts and a 90.0 save percentage.