Door #1 is to retire as soon as you can and hope for the best. Door #2 is to keep working as long as you can and hope your health holds so you can enjoy retirement. There may be a third alternative that you can choose which we’re calling Door #3. It may give you the best of both worlds.

Door #3 is to continue working full or part time and use money that had been going into savings to begin enjoying “retirement activities” before actually retiring. “It is a case of balancing time and money,” says Christine Fahlund, senior financial planner at T. Rowe Price, which recently studied the alternatives available to those nearing retirement who do not like the two standard options.

Door #3 is a transitional strategy that will provide more discretionary income during the transition years. It involves the possibilities and advantages of delaying Social Security benefits. This sounds counter intuitive to some folks who have been taught from the start to take your Social Security income as soon as possible. The lesson was that it would take twelve years to reach a break even point, and if you didn’t make it for twelve years, you had left money on the table.

A standard example of the new thinking might be a 62-year-old couple making $100,000 who want to retire. Receiving Social Security benefits of $30,800, plus withdrawing $21,100 from retirement savings gives them only 52% of their preretirement income, less than the 75% recommended. In addition, their $500,000 in savings would only grow to $526,000 by age 70. (All figures are expressed in today’s dollars, using a 3% discount rate.)

They decide to keep working, but discontinue making contributions to their retirement plan, which gives them an additional $15,000 to pay for some enjoyable activities. Each year they wait to start taking Social Security benefits, their initial benefits increase approximately 8%, based on Social Security formulas—regardless of what the market does.

In addition, if they do not tap into their retirement savings prior to their fully retiring, their investment portfolio will have increased as well. If they retire at 70, withdrawing $34,900 from savings and collecting combined Social Security benefits of $54,100, they have a total retirement income of $89,000 and their retirement nest egg would have grown to $775,000 by age 70, using long term averages. That’s almost a 90% replacement rate, rather than the 52% replacement income percentage the couple that retires at age 62 realizes.

Being able to use some of their time and money earlier to live out their retirement dreams might make working longer less onerous. Basically, their salaries would be funding their fun. It also makes sense to also use this transition phase to pay off debts, including mortgages.

“People have to make a decision whether they want to continue working, at least part time, or if having more free time trumps the extra money they would have in salary as well as later in retirement,” Fahlund says. “Unfortunately, given today’s economy, not everyone is in a position to consider these options,” she adds.

However, if couples both work part-time in their 60s while starting to play, the financial benefits may be significant, or, in some cases a couple may choose to have one spouse retire while the other continues working. “Whatever you do during the transition phase, if you are married, try to delay having the higher wage earner take his or her own Social Security benefits until age 70. That way, the benefit received will be as large as possible, and will be available for the rest of the surviving spouse’s life, regardless of which one survives. If you are single, the same rationale applies.

Fahlund notes that this approach to retirement may be most appealing to those who have not yet saved enough and those who may have saved but are not emotionally prepared to leave the work force.