I think a modified #1 is actually the best case.
Modify it by also looking them in the eyes and saying "We are doing great!. The kids are busy, happy, healthy and growing up so fast! My wife has a job she loves and our marriage has never been better. We just got back from [some recent family trip] or yesterday we went hiking at [local trail].
The trick is not to just say 'Hi, we're fine', and then just dodge away like you are guilty of something. You want to leave them thinking "Wow! What good vibes/energy from Solzhenitsyn." And mentioning some generic references to a busy and full, happy and FUN life leaves them wondering how is that possible. You are supposed to be miserable.
Congrats on your advancing fade.