When an owner attempts to delete a group, which is related to a retention policy (applied for the group), it seems that the group and services are gone, except the SharePoint site, which is kept (in a bit of an orphant state - as it thinks it is part of a group, buts is no longer).
When instead, the document library has auto applied labels, with the same retention policy, it is possible to delete the entire Group including Sharepoint site.
Are the documents in this case retained elsewhere?
So the first part is expected, and how it should work in general. For the second part, I've seen others experience the same behavior, however I cannot recall Microsoft addressing this issue, so not sure if it's expected or bug/limitation. It does not feel like the expected behavior, even now that we have the "recover" Groups functionality, as we don't have the "inactive Groups" concept. @Christophe Fiessinger might be able to give the proper answer here.