Annuitization and asset allocation with borrowing constraint

We generalize the result of Yaari (1965) on annuitization with borrowing constraint. We show that inability to borrow against future labor income has a significant influence on an individual's consumption and asset allocation strategies. We also show that there exists a certain threshold of wealth for annuitization. We find that the wealth threshold is lower in the presence of borrowing constraint than in its absence, implying the individual's earlier retirement