The median annual income for full-time workers aged 25 to 34 was $59,000 in the fourth quarter, according to the Labor Department. After-tax earnings would total about $45,000 even in the worst-case scenario. Financial planners typically recommend saving 20% of after-tax earnings for retirement, meaning the median young adult should save about $9,000 per year or $750 per month.

Invested prudently, even a percentage of that total could grow into a sizable portfolio over time. For instance, $450 invested monthly in the Vanguard Dividend Appreciation ETF (VIG 0.93%) would be worth approximately $839,300 after three decades. And the portfolio would initially generate about $13,900 per year in dividends.

However, the underlying investment would continue to grow, so the dividend payout could be even larger by retirement after a few more years. Here are the important details.

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The Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF tracks the S&P U.S. Dividend Growers Index, which measures the performance of domestic companies that have consistently raised their dividend for at least 10 straight years. It excludes dividend payers with yields in the top 25% to avoid companies with unsustainable payouts or limited growth prospects.

The Vanguard ETF includes 337 domestic companies with a median market value of $222 billion. The dividend yield is currently 1.66%, slightly higher than the 1.27% dividend yield in the S&P 500. The 10 largest holdings in the Vanguard index fund are listed by weight below:

1. Broadcom: 5.3%
2. Apple: 4.7%
3. JPMorgan Chase: 3.9%
4. Microsoft: 3.5%
5. Visa: 2.9%
6. UnitedHealth Group: 2.5%
7. ExxonMobil: 2.4%
8. Mastercard: 2.3%
9. Costco Wholesale: 2.2%
10. Walmart: 2.2%

In short, the Vanguard Dividend Appreciation ETF lets investors spread capital across a group of competitively advantaged businesses with the financial stability needed to not only pay a regular dividend but also raise the payout consistently.

Finally, the index fund has a below-average expense ratio of 0.05%, meaning shareholders will pay just $0.50 per year on every $1,000 invested.

How to turn $450 per month into $13,900 in annual dividend income

Including reinvested dividends, the Vanguard Dividend Appreciation ETF has returned 480% since its inception in 2006, equivalent to 9.7% annually. At that pace, $450 invested monthly would be worth $84,800 in one decade, $298,900 in two decades, and $839,300 in three decades.

Importantly, the Vanguard index fund has paid an average dividend yield of 1.86% since its inception in 2006, but I will use the current figure (1.66%) to introduce a margin of safety. At that rate, the $839,300 portfolio would pay $13,900 in annual dividend income. And that figure would continue to increase, provided the principal remained invested.

For instance, excluding dividends, the Vanguard index fund has returned 7.6% annually since its inception. At that rate, the $839,300 portfolio would reach $1.2 million after five more years, generating about $20,000 in annual dividend income.

Here is the bottom line: By saving $450 per month, the median worker aged 25 to 34 should be able to build an $839,300 portfolio that pays $13,900 in annual dividend income by retirement. But that same worker should be saving at least $750 per month, which leaves them with an additional $300 per month to invest in individual stocks or other index funds. So, they could have much more than $839,300 by retirement.