First make sure the console is connected to internet either via using ethernet cable or WIFI.
To update retropie system software Goto Retropie-Configuration menu >> select Retropie-Setup.
Once at the blue retropie setup screen:
1. Select Update Retropie-Setup script. (press X button on snes gamepad or Select button on playstation controller)
2. After updating the script, select Manage Packages >> Update all installed packages.