The All Blacks vice-captain will take a break until the start of next season after having a clause written into the contract extension he signed earlier this year.
The 31-year-old wants to manage his body carefully ahead of the 2019 World Cup, something former All Blacks stars Richie McCaw and Dan Carter did prior to the 2011 and 2015 World Cups.
Smith, who featured against the British & Irish Lions in June and sustained an ear problem, will play the opening two matches of this year's Rugby Championship against Australia before beginning his sabbatical, with his agent, Warren Alcock, confirming it is the best way for the full-back to go forward.
"Contractually, he's on sabbatical now," Alcock told the New Zealand Herald. "He has decided to make himself available for the two Bledisloe games because he has missed some rugby this year.
"We built in quite a significant sabbatical for him because to get him through to 2019, we felt that's what he was going to need physically and mentally."
Smith will then miss the final four matches of the Rugby Championship against South Africa and Argentina, as well as the All Blacks end of year tour of France, Scotland and Wales.