How to create retention policy in Office 365

1. Login Office 365 as administrator.
2. Go to Admin Center>compliance management.
3. In the retention tags, click + to add a tag. You have 3 options: 1) applied automatically to entire mailbox (default); 2) applied automatically to a default folder; 3) applied by users to items and folders (person).

4. Create a tag as shown below.

5. Click retention policy and then + to add a policy as shown below example.

Note: it may take time to apply the settings. Please be patient.