Koufax had been racking up seasons of 300+ innings. Add to that the fact that the Dodgers were in the World Series in 1965 and 66 and he was pitching on 2 days rest sometimes. His elbow was hurting pretty bad, but he never had any structural damage. Some Doctor told him that he was developing arthritis in his elbow. Koufax quickly retired saying that he had to think about life after baseball and he didn't want a crippled arm. He retired at age 30. It was a huge shock to the sports world.
I believe that if the money was as huge back then as it is now that he would have continued to pitch. He was making $125k which was huge money for the time, taking into consideration inflation and the devalued dollar, it was still chump change compared to today's salaries. He got a job immediately on network broadcasting and probably was making pretty close to what he made as a player without the health risks.
He never did have any arthritis problems with his elbow post retirement. I read and heard stories that he would go to Dodgers Spring Training and throw BP into his mid-late 50's throwing in the mid to high 80's and no one could hit him.