“Sebastian is an obvious role model,” Mercedes’ Schumacher told German daily Die Welt.
“I also think he will win this year’s title, he has the right conditions for it.
“In the long term, I think he should go on to become Germany’s Mister Formula One.”
Red Bull’s Vettel is on course to claim his third world driver’s championships title with a narrow lead at the top of the table over Fernando Alonso ahead of Sunday’s India Grand Prix.
The German has won the last three races.
Britain’s Lewis Hamilton will replace Schumacher at Mercedes next season and the German said his successor will benefit from the work he has put in with his team over the last three years.
“I’m not a designer and no aerodynamicist, but I think that I have contributed to the team’s development,” said the 43-year-old, adding that he hopes Hamilton enjoys success with Mercedes.
“I’ll be glad for him and for the team. I think I should have a drink with him, because I certainly would have a stake in his success.”
Having won the last of his seven world titles in 2004, Schumacher retired in 2006 which changed into a hiatus from the sport before he joined Mercedes in 2010.
But he advises others against following his example and returning from retirement.
“There has to be some sense behind it. I have seen examples where people return and are hopelessly out driven,” he said. “To get confirmation that you are no longer good enough is of course a negative thing.
“So I wouldn’t like to motivate anyone to try it and throw themselves into their own misfortune.”
He said there was no suggestion from Mercedes that he should quit at the end of the season when his three-year deal expires.
“Mercedes made it clear that they wanted to keep working with me,” he said.
Having only enjoyed modest success in his three seasons back in Formula One, Schumacher has stood on the podium just once since his return, which he said has helped ease the hype around his second retirement.
“That is, of course, an advantage, when things haven’t gone so well in the last three years,” he said.
“The hype isn’t quite so big. In this respect, I had few problems as last time.”
Schumacher admitted the humbling experience has changed him in some ways.
“Yes and no. As a person, I am still the same as before, but I’ve learned to be more open and not to despair of the difficult situations, but to understand them,” he said. “It has given me a certain looseness that people have noticed.
“I am still the same person I was, but I have taken the blinkers off with which I used to walk through the pit lanes.”