You do have a difficult decision. Research has shown that retention increases the likelihood that a child will drop out of school when he reaches the legal age to do so. You also don't want your son to be frustrated each year when he is in a class with older children.
Talk with the school counselor. Ask what screening is available through the school to help you with this decision. A developmental screening test such as the Gesell School Readiness Test can help you understand your son's readiness to go to first grade. Ask the counselor also about observing your son in his classroom. The counselor could then give you an objective opinion about his readiness in comparison to the other children. You could also observe the pre-first- and first-grade classrooms and talk with the teachers to find out what will be expected of him in each place.