The elderly couple could have a good legal beef with the seller who put in the wall. He should have signed papers making representations to the legal state of the property. If he didnt, then the survey company (even if they just copied court house papers) is liable if they signed to the property being okay. Someone signed something over (especially if a loan was involved) making representations as to the state of the property being what was represented to them. (Did I say represented enough?)
But, since the new owners are exactly that, and they did believe one thing. I would see about working with them with your lawyer. Maybe he can get a two for one. Resolve your issue and their issue at the same time so all are happy. Previous owner pays for their loss of represented property or something and you get them to sign off on the retaining wall.
Previous owner may even get to pay all legal fees. Now, i'm not sure how it works here.. but if he built on his land, did he need a permit? When you get your permit, if he got one, do you show what you are building and where? If so, he may have increased his liability there if he didnt have a company do it. Also, if a permit was required and he didnt get one... he may increase his liability.
I say both parties get together with a lawyer and screw the previous owner.