We generalize the result of Yaari (1965) on annuitization with borrowing constraint. We show that inability to borrow against future labor income can have a significant influence on consumption and asset allocation of individuals. We show that there exists a certain threshold of wealth for annuitization and find that it is lower in the presence of borrowing constraint than in its absence. With borrowing constraint the optimal individuals has tendency to enter retirement earlier.

Keywords: annuitization, wealth threshold, retirement, borrowing constraint​