When you retire a character you can replace it with a new character UP TO one level lower than it. Any exp lost in this way (a minimum of one level's worth by definition) is divided in half and credited to the player, trackable on a wiki page the same as DM Credits are.
I wasn't sure if that was clear.So you can choose to take the level 7 guy 1/2way to 8 or start a new level 2 character.

(Dungeons & Dragons)
Rulebook featuring "high magic" options, including a host of new spells.