Originally Posted by bulbar
Thanks for the responses. It's not COLA.
If it's not COLA, take the lump sum unless you have a very specific reason not to (see below).
Given your long potential retirement Inflation risk is the big one, and this annuity doesn't do much to help you with that.
Can't explain it really simply (have a bit of a hangover today ..), but here goes anyway:
You get $70k per year from that annuity, that's a 4.9% payout vs. the 1.44M (100% survivor benefits).
Now let's fast forward 20 years. What will have happened to your $70k from the annuity?
Well, in general every year your annuity will decrease roughly 2% - 4% in value. After 20 years that means it will have dropped to $30k - $45k. Let's call it halved in value. Joyful, you are at 2% - 3% payout now and one of you still most likely as 15 years and more to go!
But it could also be much less (70s and 80s style inflation) or somewhat more. If you go 5% inflation, oops $25K after 20 years ..
If you take the lump sum on the other hand you can invest it long term in equities and inflation linked bonds (if so inclined). If you structure it well enough you can keep up with inflation with a good chance for a higher payout as time goes on.
In addition, what if you both die young? Well then, if you take the lump sum you'll have a big financial windfall for your heirs, in the case of the annuity you get nothing. Also, if you can see health faltering you can freely accelerate spending at any point in time with a lump sum. Try doing that with a decreasing annuity.
Now obviously at one point with a high enough yield also this type of annuity can be worth it from a pure financial perspective (roughly 7% - 8% would be my cutoff in your situation), but you are not really close to that.
Then again, other factors come into play. Do you need a big cash infusion right now? Does it give you comfort that someone will pay you a steady sum every month etc ..
Good luck with your decision!