The reality is that an annuity comes with lower volitility and risk.
When you look at the risks for a retirement payout, you need to think carefully. How long will you live? How long will you retain your faculties to manageme investments? What protections do you have against dishonest or incompetent advisors?
Unless you're unlikely to live long, or have trustworthy children or other advisors, the annuity is probably the best scenario.
But as you said just because the expected is higher doesnt mean the actual will be. But you still should always pick whatever has higher expected
You can almost think of risk as currency, i.e. each addition unit of risk opens you to strategies with higher expected return. But you can also access strategies for which you're able to "pay" the risk (basically fits into your tolerances).
You're missing the problem of sequencing of returns. If you made that decision at 65 years old in December of 2007, you would quickly regret it unless you were one of the small percentage of people who can take the massive volatility that followed over the next 15 months.
You ABSOLUTELY MUST take into account the risk. Not doing so would get your sued as a financial planner. Frankly, this is where people lose so much of their savings is listening to hogwash like this.
Go spend some time and get your CFP or CIMA certification and then come back, and your answer will have changed.
And if I sound ticked off, it's be cause I am. you are totally ignoring Behavioral Finance, which is much, much more important than simple math.