Letterman made the announcement during a taping of his show at the Ed Sullivan Theater in New York City on Thursday.
“What this means now, is that Paul and I can be married,” Letterman joked, referring to his longtime bandleader and sidekick Paul Shaffer.
“We don’t have the timetable for this precisely down – I think it will be at least a year or so, but sometime in the not too distant future, 2015 for the love of God, in fact, Paul and I will be wrapping things up,” Letterman said.
Letterman said he had told CBS president and CEO Leslie Moonves about his decision to not renew his contract.
Letterman has consistently ranked second in the late-night ratings since ABC moved comedian Jimmy Kimmel into a directly competing slot in January 2013.
Both Letterman and Kimmel regularly attract 2.6-2.8m viewers, but Kimmel has proven more successful at drawing the younger viewers valued most by advertisers.