First Rule: Games should be fun.
For everybody. For all the players and also for the GM. The GM is in a weird situation. He or she has more power over the adventure than the players, he or she gets to do a lot of preparatory work (and much of that work never gets used), and he or she doesn't get a player character to identify with. But ultimately it is the players who make the adventure happen through their interplay.
Second Rule: Disaster-proof your plots.
If you are the GM, you will understand that players never get the obvious clues you dangle in front of them. They always chase the red herrings. Well, not always, but I hope you get what I mean.
That also means your campaign should be designed to cope with the death or maiming of a player character. As a GM I would never produce a player or party kill out of a blue sky, because of the First Rule, but the other side of the coin is that adventures must involve risks. If a player decides to let his or her character fight the Balrog on the bridge to save the others, that is a valid dramatic choice, with no guarantee that you will resurrect the character. In a modern-day or science-fiction setting, that might be completely impossible.
But there is good news: You can cheat.
By that I mean that until it has happened in gameplay, you can alter the world. The evil wizard your players were hunting could become a misunderstood, socially inept hermit, and rumors of necromancy could be wildly inaccurate. If you do that, take care not to frustrate your players. Maybe there is an evil wizard who framed the hermit, and who needs to be fought, and the hermit can give the players vital information and magic items. Or something like that.
My suggestion: PCs become NPCs, NPCs become PCs.
Unlike a dramatic situation like a character death, you have time to prepare. Talk to all the players. Introduce a couple of NPCs who can, over several sessions, become helpful to the party. The trusty wilderness guide. The friend at court. The rogue who is a honorable rival.
Design these NPCs with input from the players who want to switch. Give them a power level slightly below the party average and below the old characters -- there is no free lunch.
And when the new characters are suitably introduced, find a way to take the old characters out of play. Perhaps one of them breaks a leg. A tearful goodbye as he or she stays behind in the village, plot-relevant magic items etc. are divided among the old player characters because those were the fellow adventurers who will need them now, and the weakened party has to rely more and more on the new player characters.
Or you could even allow the old characters to die in a suitable heroic, plot-enhancing manner. Say he or she gets assassinated by so-far-undetected villains, pointing at the real culprits with the last, dying breath.
- A slight loss in "power" for the players who caused all this commotion. TANSTAAFL.
- A slight gain in "power" (through items) for the players who suffer through all this commotion.
- A chance for a memorable goodbye and perhaps a plot enhancement.