yeah but living under the initial $1 million line, for how long? does that mean, I should always live on the bare minimum in fear of the next crash? Even with rentals, I'd be in fear of the next fire/tornado/house being blown apart/etc...
I'm firmly in the camp that if you're having to worry about living on bare minimums, then you aren't ready or haven't thought it through enough how to make it work. It's certainly not worth it to go through your ER life worrying every day whether you'll have enough, or whether you'll be able to make it following the next (inevitable) market crash.
If you create some income streams from your portfolio, you will not have to worry (reasonably) about whether you'll have enough. You'll know that you have enough, barring some kind of outrageous black swan event. And even those can be mitigated to a large degree, particularly through diversification and insurance.
To use your rental house example: You would certainly have insurance on any rental home you owned, which would pay you for all necessary repairs or replacement. With your cash reserves, you'd be fine until you made repairs or found a suitable replacement property. I'm sure you can even get insurance against income loss.
Regarding the annuity, I'm a fan of having a fixed annuity purchased from your savings/portfolio that provides just enough income to cover your minimum living expenses (food, housing, etc.). That way, no matter what market crashes or anything else you encounter, you'll always be assured you will be housed and fed and comfortable. Then, you can invest what's left in your portfolio in a reasonably confident/aggressive manner, knowing that even in a horrible market crash, you'll be fine, and will have the time to recover since your minimum spending needs are met by the annuity, and you don't need to draw down principal in a down market.
Let's use your example of $1 million saved with $40k annual expenses (adjusted for inflation each year). Of that, let's say you could get by on a bare minimum of $20,000/year. That would provide a housing payment, food, medical care and insurance, and a reasonable amount for clothing, transportation, and any other necessities. But nothing else. No travel, no eating out, no partying it up. Let's say you could buy an annuity that would provide that lifetime income for $500k.
After buying the annuity, you have $500k left in your investments. Using the 4% rule, you can have a reasonable allocation between stocks and bonds (say, 60/40) and have a very high likelihood of being able to draw $20k per year from that remaining portfolio to cover your discretionary spending. And you can feel confident "letting it ride" even in market downturns, because you're not going to go hungry no matter what -- the annuity has taken care of that. Of course, odds are that not only will you not go broke on that remaining $500k, more likely you will end up with even more than you started with. But you'll have the flexibility to limit your discretionary spending in down years and increase it if times are good, if you choose.