I like the idea of a retaining wall, it's easier to mow the yard above.
You need good drainage to keep a wall for a long time.I would fill all those blocks with mortar to keep the water out also. If they freeze, water trapped inside will break. That is why most walls are solid concrete or solid blocks.
The tree you have is also a big issue. The tree will die if you burry the root system and trunk. And if it lives it will break the wall with the roots. The tree and stump need to go if you want the wall to last.
Stay in the shade.