Advice on windfall with specific investment options and general RE plan

My spouse and I (late 30s) just learned we’re receiving a substantial windfall with some specific investment options. I’d appreciate your thoughts on our situation. 

Pre-windfall: 

• Spouse 1: Unable to work
• Spouse 2: 110k, saving 21% in a 401k
• Cash: 85k
• Retirement accts: 300k in the following
  • Roth:182k
  • 401k: 35
  • Trad IRA: 83k
  • Retirement account assets are in index funds, mix of US and intl equities. 
• House: 150k and 15yrs left on mortgage interest = 4%; mortgage = ~1100/mo; not counting as part of our FIRE number but valued at about 250k
• Spend: Average of 72k/year over the last 4 years, including healthcare (~8000/yr and mortgage), excluding health insurance and taxes
  • We’d prefer to spend more

Windfall: 3.75m (fully untaxed)

• We have the option to put some portion of this in a tax-exempt annuity, so the payouts would not be taxed either. I know annuities are typically not recommended, but I couldn’t find any discussions that included untaxed payouts. 
• Ideally, we’d put this decision off, but we can’t do that and retain the tax exemption

Goals: 

• Spend: We want to increase our spending to around 90k, excluding health care. We might not end up spending this much, but it will be nice to try it out. 
• Home: We need to either do some work on our home or move. Either way, will pay it off immediately and reserve some of the windfall as cash. 
• RE: Spouse 2 (me) would like to RE in June 2026. Unless work becomes a lot more enjoyable now that we’re FI? Here’s why:
  • I’ve been at my job 1.5 yrs, and making it past the 2 year mark might make it easier to go back to work if I need to later. (I think this would only be necessary for health insurance, so I wouldn’t be looking for a high salary)
  • We’ll be able to use COBRA through 2027, before starting the ACA in 2028. (I know COBRA is not usually the cheapest option, but we get to the OOPM yearly and don’t want to stay under 4x FPL, so in our case it makes sense)
• Child: We don’t have kids, and now they seem like an option. So it’s a possibility, but I think we’d still aim for them same spend. 

Option 1: Including untaxed annuity, in 3 phases starting in 2026: 

Asset allocation: 

• 150k to pay off house
• 1m into a 20 yr fixed annuity that pays out 74k/yr 
  • This puts us under 4x FPL in case that becomes necessary to get healthcare, but we won’t be trying to keep our income that low.
  • I’m thinking this would function like a bond, reducing SORR risk
  • The options here are flexible. We could get one that is guaranteed for 20 years then pays out to life expectancy, put in a different amount, or get a similar product that is tied to the S&P 500. We can also change the length and principle.
• .5m in bonds in a taxable account
• 1.75m in stocks, 300k in retirement accounts as noted above and the rest in a taxable brokerage (index funds, split between US and Int’l)
• .4m in HYSA or money market, for house upgrades and lumpy life upgrades (car). This is probably excessive, but feels safe? Could always put it in the brokerage later
• Starting in 2026, we’ll be able to put 19k/year into an ABLE account with no work requirement and tax-free growth

Phase 1 (years 1 and 2): 

• Spouse 1: FIREd
• Spouse 2: Continues to work until June 2026, max retirement accounts (401k, IRAs for both spouses, 19k to ABLE; no access to mega backdoor Roth)
• Use employer insurance (employer-subsidized then COBRA) through 2027, estimated cost in 2026: 17000, in 2027: 26000
• Non-healthcare spend: 90k
• Annuity income: 74k
• No withdrawal from other accounts, add unspent funds to taxable brokerage. 

Phase 2 (years 3-20):

• Healthcare/insurance cost estimate: 45k (adjust yearly for inflation)
• Non-healthcare spend: 90k (adjust yearly for personal inflation level)
• Annuity income: 74k (not inflation adjusted)
• Withdraw from taxable brokerage for required spend (56k or less to meet spending needs, adjusted yearly for inflation). Expect to have room in the LTCG 0% bracket to withdraw an additional 19k to deposit in ABLE account. 
  • Probably won’t need to start withdrawals until year 5 or later, depending on cash reserves

Phase 3:

• Annuity is done; begin drawing down tax-advantaged retirement accounts to stay in a low tax bracket, balanced with taxable accounts
• Get on Medicare at 65

Option 2: 

More or less same as above, but the 1m that would go into an annuity into index funds instead. 

I’d appreciate any advice. What am I missing or not considering? Thank you!