The way that I understand it, if there are less than 12 hours remaining in the auction, the buyer cannot retract their bid but must request that the seller cancel their bid instead. If you auction is ending in less than 12 hours, then that's what needs to be done.
If more than 12 hours remain, the buyer can cancel their bid on their own, with no help from you. EBay keeps a tally of your retracted bids and this shows up in your profile. It doesn't look good to other sellers and it may be why the buyer is contacting you. If they get you to cancel their bid instead, it doesn't reflect poorly on them.
In the long run, do you really want to risk this person winning the auction and then not paying for it? Recovering your Final Value Fee, doing the NBP thing and waiting to relist the item may not be worth it. I would email the buyer back and tell them to go ahead and retract the bid with my blessings. However, I would not offer to cancel the bid for them.