I agree with you that living off the earnings of $4 million isn't THAT much, but the question is, IS it enough? You're also spot on about taking the lump sum...do that...always.
Some things though:
1) If you invest with Vanguard or Fidelity, a Bernie Madoff won't get you.
2) Let's see what living off $4 million can bring. If you take 4% initially, that's $160,000 per year the first year. If you ALWAYS only take 4% of the total, and the investment brings more each year (6.5% return), you can continue to take MORE each year and in 40 years be taking $379,000 per year while the investment has grown to $9.7 million. That is pretty conservative and does not keep up with 3.5% annual inflation, but with no debt, and starting out making more initially than he was while working, he could do that.
3) IF you want to adjust for inflation and make it last 40 years, then you could take $160,000 the first year, and gradually increase so that you're taking $612,000 in the 40th year. That will leave you with just $1.6 million then, so either you need to take less, OR plan to die in 40 years, OR decide that after 40 years you can take LOTS less. If you're debt free, have purchased Long Term Care insurance, you should be able to do that.