Powell, 31, won three caps for his country in 2002, featuring in a two-Test tour of South Africa before also appearing against Canada in November of that year.
He suffered the neck injury in early 2011 while playing for Northampton, who he joined in the summer of 2010 from Worcester.
Powell, who also played for Cardiff Blues, said: "Obviously I'm gutted and devastated that my career has finished this way.
"No player wants to retire, whether it's part of a natural process or because of injury - you want to think you can go on forever.
"It's been a massive shock and it probably won't sink in until I'm watching the players running out and I'm not a part of it. It's been great at the club and I've enjoyed myself.
"I played a lot more rugby than I was expecting to play, and enjoyed being part of a squad that was part of the Heineken Cup final. All in all it's been a great part of my career.
"Playing for my country was my major career highlight - it's every young kid's dream and I was lucky enough to play for Wales, which was a massive achievement."
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The entire All Blacks apparel line has been updated for 2013/14. Check out the New Zealand All Blacks polo.
The Nike Tiempo is a solid rugby cleat and one of few styles still made from full-grain natural leather.
The Gilbert Blitz 8S rugby cleat is a great cleat at a great price of $69.99. Get a new pair of cleats today.
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Wear the crest of the British and Irish Lions on your t-shirt. A great look for the summer.
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The All Blacks Performance t-shirt is black with hints of blue from the training jersey. Very Cool.
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The NEW All Blacks 2013/14 jersey has arrived at World Rugby Shop. Dare to wear the colors of the All Blacks.
