Shayla Kelley Schrepfer, one of Retton's four daughters, shared on Instagram Wednesday that the Olympian suffered the setback after making steady progress earlier in the week.
"At the beginning of this week, we were going on the up and up. We were so excited, seeing so much progress, and then yesterday we had a pretty scary setback," Schrepfer said. "She is still in ICU and we're just working through some things as far as the setback goes."
Schrepfer added that Retton had a "better day" on Wednesday, but is "really exhausted" from all she has been through.
Retton, 55, has been hospitalized in the intensive care unit for over one week and was initially not able to breathe on her own, according to a fundraising page created for Retton, who is not insured, according to her family.
Retton's daughters have not shared exact details of their mom's diagnosis beyond saying previously that she is battling a "very rare" form of pneumonia.
As of Thursday morning, the fundraising page for Retton had raised over $450,000, far exceeding its original $50,000 goal.
In her message, Schrepfer also thanked people for donating money and praying for her mom.
"Thank you guys again for this support," Schrepfer said. "I'm getting so many messages and emails and it's so great to see people love on her."
Pneumonia is an infection that causes the air sacs of the lungs to fill with fluid, according to the National Institutes of Health.
"Pneumonia is one of the most common reasons patients get admitted to the hospital," said Dr. Darien Sutton, an emergency physician and ABC News medical correspondent, who is not involved in Retton's care. "If someone isn't able to breathe on their own or isn't able to get enough oxygen and requires additional care, it increases their level of risk and the level of care that they're needing in the hospital."
Retton is most famous for her performance in the 1984 Los Angeles Olympics, where she scored a series of perfect 10s to become the first-ever American to win an Olympic individual all-round gold, according to her official Olympics biography.
Retton also won two additional silver medals and two bronze medals at the Los Angeles Olympics, making her the most decorated athlete of that Olympics, according to her bio.
Retton has remained an iconic American sports hero in the decades since and was inducted into the International Gymnastics Hall of Fame in 1997.
In 2018, Retton competed on season 27 of ABC's dancing competition show "Dancing with the Stars."
"This has been the time of my life," Retton said after she and her pro partner, Sasha Farber, were the fifth couple to get eliminated from the competition. "I hadn't challenged myself in decades and now I challenged myself. I'm off to a fresh new start."