First timers to Germany need itinerary ideas

You really might consider getting one of the good travel guides on Germany--like Rick Steves' Germany.
I'd start out in Munich for a minimum of 4 days, and pick up a rental car as you leave town.
If you're looking for an itinerary, look into the guided tours' itineraries in the region.

Id agree with a car! You could even fly into Frankfurt, do the Rhine from there and hit the stops on your way to Munich dropping off the car once you get into the city and fly out of Munich (or the other way around). Get the RS Germany book. It has all the highlights. Rothenburg would be a fun stop for you. Enjoy!

Thank you! I have already ordered the 2017 Rick Steves book - its on its way.

"We want to enjoy the food, see beautiful castles, the Rhine river, visit some beautiful small towns and experience historic Germany."

The Rhine accomplishes all of that if you spend several days there. Maybe you also want to visit places like Munich with around 1.5 million residents. Germany has a lot of variety. But with your stated goals, I'd suggest adding the Mosel River towns and villages to your Rhine stay - very close by and LOTS of variety within the two regions as well. The Mosel enjoys especially bucolic scenery; it's an area that has changed somewhat more slowly than other parts of Germany over the years, a place where families stay on for generations, keeping its traditions a little better than many other regions.

Rhine Info
Mosel River Info

Another great area with similar charms is FRANCONIA, in northern Bavaria. No problem spending a week there either. See somewhat larger towns like Würzburg or Bamberg in addition to small places like Iphofen, Marktbreit, Rothenburg, and Bad Windsheim. Bamberg is a particularly good place for regional food and beer varieties. But if you want to see a major city like Munich AND Franconia within a week, that's possible as well.

A rental car is pretty useless within Munich and unnecessary for the Rhine/Mosel and Franconia. Day passes allowing mostly unfettered train outings for these regions are cheap (€19-€30/couple/day) and available from station ticket machines.

I agree with Russ.

Munich is good if you want to see the city and/or the Alps. Throw in Regensburg, Augsburg, Ulm, etc. and that area would be a full ~12 days.

However, as you mentioned castles & the Rhine, the area around Frankfurt to include Franken would easily fill a dozen days. I am prejudice as Franken and the Rhine are two of my favorite areas.

We have visited Germany 13 times in recent years and used the train exclusively. We lived in Germany in the 70's and the 80's and traveled with our own car. It was the less expensive way to travel and we liked it. Now, we really enjoy (prefer) the train. For us the train is less trouble than dealing with a rental car: parking, pedestrian zones, navigation, rental firms, etc. I bet you could like either.

"I am prejudice as Franken and the Rhine are two of my favorite areas.... We have visited Germany 13 times in recent years and used the train exclusively."

IMO, Gary's subjective opinion (and who doesn't have one of those) is very well-informed by his time in Germany. That's almost the opposite of prejudice!

I came back on here to suggest that a 35th anniversary might be cause for 1-2 nights in a castle somewhere. Oberwesel's Auf Schönberg castle/hotel might be one place in your sights. Because of the castle's position high on the cliffs, train users will probably need a taxi ride to get up and back into town.

One last thought - there are numerous other places in Germany with what you're looking for, including the Black Forest, the Odenwald, the Swabian Alb... throw a dart... The places I've suggested are generally very easy by train (or by car,) and the Black Forest is fine too, but you should look carefully at transport in other areas before jumping. Also, no matter the region, be careful about location when booking rooms - the towns are small, but some inns may still be out in the sticks and a long walk from the station.

... our own car. It was the less expensive way to travel

If you live in Europe and have your own car, and are going to pay depreciation, taxes, licensing, and maintenance anyway, car travel,, as a variable expense, is less expensive. You basically pay only for fuel. Rail fares and fuel cost, in my experience, are often close.

However, if you don't have a car, and have to pay the daily rental fee, going by car is almost always a lot more expensive. For my trips (10 since 2000), I've always compared both a car and public transportation, and I have found renting a car would be 2 to 3 times more expensive. That's traveling singly in a smaller car. Even with two people, rail is less (regional fares are much less for the 2nd through 5th person. Once you get more than 2 or 3 people in a small car, there is not room for all your luggage and you need to rent a larger, more expensive car.

Germany is bigger than it looks on a map. You would probably be better off staying in one region or two to maximize your time. And I am admittedly 100% biased towards Munich and the Oberbayernland. There's not enough time to see everything in Munich. It's an awesome town! There are two palaces right in town - Schloss Nymphenburg and the Munich Residenz. And there's another one just outside of town - Schloss Schlessheim (just off the S1). The churches are breathtaking - St. Peterskirche, St. Michaelkirche (where the Ludwig ll is buried), Heilig-Geist-Kirche, Frauenkirche, Theatinerkirche and the Asamkirche are all within blocks of each other. The quality of the beer is world class, and it's a totally different beer culture. It's not sloppy drunk, it's literally a culture. You have to experience it to understand it. But keep in mind - that time of the year is the last two weeks of Oktoberfest. Everything is more expensive and crowded. And it can be very difficult to get into the big tents. But it is an experience you can only get at the Oktoberfest. And the towns I would see outside of Munich: Füssen/Schwangau (Neuschwanstein, Hohenschwangau, Linderhof, Kloster Ettal and the Weisskirche); Garmisch-Partenkirchen (Zugspitze - Germany's highest mountain); Mittenwald (many consider to be Germany's most beautiful town); Berchtesgaden (Eagles Nest and the Königssee); and Salzburg (so many things to see like Munich). The other thing to see is the Herrenchiemsee. Another one of the King Ludwig ll's palaces. These places alone will easily take up 11-12 days. And I personally always drive. There's just too much to see along the way in the Alps.

Russ' suggestion - I came back on here to suggest that a 35th anniversary might be cause for 1-2 nights in a castle somewhere. Oberwesel's Auf Schönberg castle/hotel might be one place in your sights.

I really liked this idea for a special celebration to stay in a castle. However, the Auf Schonberg castle in Oberwesel was completely booked for our entire trip. Any other suggestions for a castle hotel in a beautiful area?

There are other castle/hotels on the Rhine as well. I have no personal experience to share but here's some info...

Burg Liebenstein in Kamp-Bornhofen (on the east bank of the river) gets good reviews. There may be a shuttle service to/from town as well - ask. K-B is is not a bad location. The town has a station that gets you to Braubach in 10 minutes or Koblenz in 25 minutes, both by direct train. Rüdesheim lies 35 minutes to the south by direct train.

People seem to like Burg Reichenstein as well. It's in Trechtingshausen, which is also served by train and gives direct access to all the west bank towns (Bacharach, Oberwesel, etc.) As I recall, getting there on foot is not too difficult - a fairly gentle uphill walk.

We went to Germany last summer for 13 nights and this was the itinerary we came up with. It worked really well. We did a combination of rental car and train. I felt like the 6 towns we stayed in were very different and gave us a nice overview of Germany. I've included some of the things we did in each town as well.

Flew into Munich and took the train straight to Salzburg arriving around 3pm.
Salzburg (2 nights)

Took the train to Garmisch-Partenkirchen (3 nights)
Day trip to Fussen for the castles & Alpine Luge ride
Zugspitze
Olympic village/ski jump

Rented a car and drove to Baden Baden (1 night)
Thermal Baths

Drove to Bacharach on the Rhine (2 nights)
Rhine river cruise
Spent a few hours in St. Goar

Drove to Rothenburg ob de Tauber (2 nights)
Stopped at Heidelburg Castle on the way
Night watchman tour

Drove to Munich (3 nights)
Dropped car at airport and took taxi to hotel

The Rhine and Mosel area are great. Burg Eltz is a highlight, can be reached without a car but easier with one. The castle in St. Goar is great too. We stayed in Bacharch and took the Rhine cruise between there and St. Goar. We only spent two days there upon arrival on our 2006 trip before heading off to Baden Baden, but I could have spent more time there. We only stayed in Baden Baden for a night but also enjoyed that. Some people hold Rothenburg ob der Tauber in disdain because it lives off of tourism, but we enjoyed it a lot. We stayed on in Germany for four days after a river cruise ending in Nuremburg--two nights there with side trip to Bamberg and two nights in Munich. We like Nuremburg even better than Munich, so much better value, great sights, no tourist crowds to speak of in late April/early May time frame (this was in 2014). Had visited both on our 2006 trip as well. Some countries I feel obligated to go back to a city if I am in the general area, like Florence or Rome, but I don't feel that sentimental attachment to Munich. We had a car on the 2006 trip, partly because we wanted to visit the city of some of my ancestors. So we ended up planning a blitzy itinerary that also included Austria over 14 nights. I think you can do fine on the train in Germany and we will do it that way next time. That said, it's one of the easier countries to drive in in Europe despite the speed of some drivers. There are a lot of Neuschwanstein detractors out there but we enjoyed it. The alps in that region, I was not as impressed with, not as appealing as the French alps which we later visited. My perception might have been affected by the weather that was rainy when we visited. Currently planning a Krakow to Berlin itinerary for a future trip, which would include Dresden and Goerlitz. These are less common to include on a first trip but my research (and a business visit to Berlin) indicate that they are very worthy stops. I think Rhine + Bavaria + Berlin areas would be too much ground to cover on one trip, but you could do two of the three. I say this about all of Rick's books, but the Germany book is quite good.