I guess I'm an optimist
. There is always someone saying the sky is falling. And when I invest money when they are the loudest - my money grows the most.
If it were me, I would 100% take the lump sum at 55 and roll it into a Traditional IRA. I have high confidence (> 95%) that my investments are going to have an IRR for for the next 20+ years greater than 4% (Nun calculated an IRR of less than 4% for your annuity payments). Additionally I calculate that if you take the lump sum at 60 vs. 55, the IRR is less than 3% to get from $703,293 to $804,364 in 5 years.
What is your risk tolerance? If you are going to sit the lump sum in CASH, you may as well take the annuity payments. But it sounds like you are already invested in the market (you said you have been living off savings and still have more now than before the crash of 2008). So it sounds like you've experienced the some rough patches in the market and know that if you don't sell at the bottom you are going to be OK.
Besides the better return I expect (not every year, but long term) by investing myself vs. the really crappy IRR from the annuity payments, I would also have complete control until age 70 of when I was taxed on the money.
I would be super aggressive in Traditional to Roth conversions - including the pension lump sum received at age 55.
Something I've been playing with to attempt to even out the tax bill through retirement is this: Based on current tax laws and my current situation - I calculate what my marginal tax bracket would be if I were 70 and having to take RMDs and collecting SS (in today's dollars). I then make Roth conversions this year to max out that tax bracket. If the market does really good, your Traditional IRA may still grow through the years and keep you in that tax bracket (good problem to have). But depending on your balances and if the market has some negative or even low return years, eventually you might fall into a lower bracket when the predicted taxes at age 70 is done. I would take that as a sign that I may have reached a good balance between Roth and Traditional accounts.
I'm also planning to delay SS (if i is still around) until I am comfortable with my split between Traditional and Roth accounts (or until 70).
One more note: it is somewhat deceiving to look at the lump sum with a 4% withdrawal rate (some will argue the safe withdrawal rate should be lower or higher - but we'll just assume it is good for now) - and note that it only produces an annual income the first year of $28,132 vs. the pension payment of $43,566. But the 4% initial SWR assumes annual increases for inflation. So the IRR the SWR is based on is greater than 4%. I don't know the IRR off hand, but it is probably more like 6-7%. I think there is a good chance the market will exceed even this (depending on what the investments are).
Inflation risk is real. I believe the least risky plan is take the lump sum and invest it in a well diversified portfolio that has at least (preferably more) 60% stock mutual funds (or ETFs).