The 32-year-old, who won 23 Olympic gold medals, said on Friday that he does not want to compete at a sixth Games as he has already achieved everything he set out to accomplish in the sport.
He maintains, however, that he could return to his dominant form in time for Tokyo if he wanted to.
"I will not be competing in Tokyo, no," he told Reuters in a telephone interview.
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"I just have zero desire. I think I could. I think it would be easier to come back this time around if I chose to, but I really don't have any goals to make me want to come back.
"I'm very happy with where I ended up in my career and I'm sure 20 years down the road I'll be able to look back and say I hung my suit up at the perfect time."
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Phelps said the U.S. will still be favourites to top the swimming medal table in Tokyo and pointed to five-times Olympic gold medallist Katie Ledecky and Caeleb Dressel, who has won two Olympic golds, as reasons to believe the team is in good hands.
"It has been very promising the last two years to see Katie just continue to plough through records and prove her dominance in the freestyle events worldwide," he said.
"She's probably already proven that she's the greatest female swimmer ever. And Caeleb has really been swimming well short course and he had a great meet last year at the worlds," he said.
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"The US team is always probably going to be number one or number two. We have a very good tradition of excellence where we always find a way to get it done when we need to."
Phelps said he now wants to devote his time to causes he cares about, including water conservation in the U.S., where more water is wasted every day than anywhere else in the world.
Phelps is working with toothpaste company Colgate to encourage people to turn off their taps while brushing their teeth since nearly half of the U.S. population report leaving the water running while attending to their oral hygiene.
"Water has always been a very big part of my life," he said.
"Every drop does count, every drop matters and there is just way too much water being wasted," he said, adding that a person can save four gallons of water simply by turning off the tap while brushing.
Phelps said he is done with competitive swimming and would not even return to the water for a rematch against the great white shark that beat him by two seconds in a 100 metres race, aired during the Discovery Channel's Shark Week last year.
The shark was not real; the producers of the show approximated how fast the shark would have swum over the distance and superimposed it alongside Phelps.
"I think he would probably win again," he said of the great white, adding that he is fascinated by sharks and is passionate about their conservation as well.
"It's almost impossible to beat an animal that swims up to 25 miles per hour."
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