It might be a hygroma but I'd have it biopsied to make sure of what it is. Draining it if its a hygroma can help.
He's a little old for it to be a histiocytoma (a self resolving tumor similar to a wart) but its still possible that is it too.
You can check those out here to see if that seems like it
www.marvistavet.com/html/body_histiocytoma.html
If your vet doesn't know what it is you may want a referral to a veterinary dermatologist to work on the problem.
This site has a good list of skin issues in dogs causing lumps and bumps etc
http://www.peteducation.com/article.cfm?cls=2&cat=1638&articleid=424
Hope this helps you!
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