Basically, it goes like this:
To retire, you need
-to be at least 1 week old
-at least level 15
-first 5000 gold, then 10000, etc.
By retiring, you
-become level 1 again, so you lose XP and levels
-keep a portion of your WPF (formula is at the website)
-keep all your items
-keep all your gold (except what you spent on retiring, obviously)
-gain XP faster (again, formula is at the website)
-can choose one of your items to heirloom: that gets a bonus to the stats, and most of the time gains a difficulty point as well (the last one is about to be changed with the patch)
To retire
-Create a new multiplayer profile in Warband with the desired name (in your case, Arson_II for example)
-Log in to one of the cRPG servers, like you did with your original character
-Leave the server
-Log into the website with your old character
-Press the 'heir has been born button'
-Choose your heirloomed item
-Your newly created character should appear on the bottom (as well as any alts you may have), select him/her
-Press the big button
Now, you can't use your old character anymore obviously, but your second generation is ready to go.
