The median annual income for full-time workers aged 25 to 34 was $59,000 in the fourth quarter, according to the Bureau of Labor Statistics. That means after-tax earnings would total roughly $45,000 in the worst-case scenario. Financial planners often recommend saving 20% of after-tax earnings for retirement, which means the median worker aged 25 to 34 should be saving about $9,000 per year, or $750 per month.

Even half that figure invested wisely could grow into a sizable portfolio given enough time. For instance, $375 invested monthly in the Vanguard S&P 500 ETF (VOO 1.81%) would be worth at least $592,100 in three decades after taxes and fees. And that sum could be reinvested in the Vanguard High Dividend Yield ETF (VYM 1.55%) to generate about $17,900 per year in dividend income.

Here's what investors should know.

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Step 1: Invest $375 per month in the Vanguard S&P 500 ETF for 30 years

The S&P 500 (^GSPC 1.81%) measures the performance of 500 large U.S. companies that cover about 80% of domestic equities in terms of market capitalization. Because of its scope and diversity, it is often considered the best barometer for the entire U.S. stock market. The Vanguard S&P 500 ETF tracks that index. The five largest holdings are, as listed by weight:

1. Apple: 7.2%
2. Nvidia: 6.1%
3. Microsoft: 5.9%
4. Amazon: 3.9%
5. Alphabet: 3.6%

The S&P 500 achieved a total return of 1,750% over the past three decades, compounding at 10.2% annually, even though the index struggled through four bear markets and the U.S. economy was hit by three recessions. That period covers such a broad range of economic conditions that investors can reasonably expect similar returns over the next 30 years.

However, I will assume slightly more modest upside of 10% annually to introduce a margin of safety. At that rate, $375 invested monthly in the Vanguard S&P 500 ETF would be worth $740,200 after three decades if all dividends were reinvested. At that time, the balance can be reinvested in another index fund that pays a higher dividend.

Here, the math becomes a little more complicated because selling the Vanguard S&P 500 ETF may or may not be a taxable event depending on the account type, and capital gains tax, if any, will vary based on state of residence and filing status. However, in the worst-case scenario, the associated fees and capital gains tax would consume about 20% of the $740,200, leaving about $592,100.

Step 2: Reinvest the balance in the Vanguard High Dividend Yield ETF after 30 years

The Vanguard High Dividend Yield ETF measures the performance of about 520 companies forecasted to pay above-average dividends. Its constituents are generally considered value stocks, and the dividend yield is currently 3.05%. The five largest holdings are, by weight:

1. Broadcom: 4.9%
2. JPMorgan Chase: 4%
3. ExxonMobil: 2.7%
4. Walmart: 2.3%
5. Procter & Gamble: 2.2%

The Vanguard High Dividend Yield ETF paid an average dividend yield of 3.03% during the past 10 years. At that rate, the $592,100 reinvested in the index fund (i.e., the sum from the previous section) would generate a little more than $17,900 in annual dividend income.

In closing, the strategy I've discussed covers 30-plus years. It is possible that the Vanguard High Dividend Yield ETF is not the best option or no longer exists three decades from today. In that scenario, investors could select a different product that pays a substantial amount of passive income.

I only have one caveat: Choose an investment product that balances a high dividend yield with the security that comes with owning a collection of value stocks. In other words, do not simply select the index fund with the highest yield, but rather ensure the fund is heavily invested in high quality stocks.