0815 GMT February 21, 2018
"I'm not ready to play... I fought a lot knowing it was my last match of the season," the world number one, who had also quit midway through the Paris Masters tournament two weeks ago, told reporters following his 7-6(5), 6-7(4), 6-4 defeat by Goffin, BBC reported.
"My commitment was to try... I've missed this event too many times in my career," added the Spaniard who has been plagued by knee injuries throughout his career.
Nadal, who was hobbling around the court for much of the third set of his contest against Goffin, qualified for the season ending tournament for the 13th successive year but withdrew before the start on five previous occasions.
Monday's withdrawal means the 31-year-old, who claimed the French and US Open trophies this year to increase his Grand Slam haul to 16 titles, has yet to win the season-ending tournament.
"I was not enjoying it (out there today) so it was no fun to play like this. But I had an unforgettable season," he added.
Grigor Dimitrov overcame a bout of beginner's nerves to mark his ATP Finals debut with a three-set win over Dominic Thiem.
Dimitrov surrendered a one-set lead at London's O2 Arena and then needed two chances to serve for victory in the decider before edging past the talented Thiem 6-3, 5-7, 7-5.
"I'm not going to lie, I was pretty nervous in my first match out here," Dimitrov said.
"It's not the same as practicing on this court, you feel the weight on your shoulders, in a positive way of course. I'm just very grateful to win in that manner. It's not easy playing here for the first time."
Serving for the match at 5-4, however, Dimitrov wobbled as a framed backhand beyond the baseline allowed Thiem a reprieve.
But the Austrian, perhaps also affected by the jitters, failed to consolidate as two consecutive double faults allowed world No. 6 a 6-5 advantage and a second chance to serve out.
Even with two match points, Dimitrov threatened to choke again as he spurned both, one with a double fault of his own. He finally converted a third, however, when a Thiem backhand landed long.