Germany/Switzerland and Austria road trip itinerary doable? What to cut out or substitue?

Looks to me like way too much for the time allotted. By google estimate ( which I have found to be optimistic) you have 21 hrs of driving over 7 days. This does not include finding parking ( at each attraction and hotel) and time checking in/out of hotels every day.

As your flight from Munich is to 'depart Europe', the common wisdom dictates you be at the airport at 730AM. Not sure what you can explore in such a short time, that early in the day. ("day 8")

Congratulations on your anniversary. 15 is a big deal these days. Well done. My 40th is in a few weeks.

if you want to do Wacky Races then I won't tell you no. You won't see much and the inside of the car will get a bit samey but have at it.

I take it that this will be your one-and-only trip to Europe ever?

When will you take back the car? You need to be in the airport at 7:30. Figure 45 minutes to drive to the airport on a Monday rush hour, then car back, then into the airport?

We used Via Michelin to plan routes - miles and time. It gave us a good idea as to how much time we’d spend in the car. It didn’t tell us how often we’d get lost, miss an exit, need a pit stop, look for parking. We planned out our time and spent at least 2 nights in each place, giving us one full day minimum.

Each day on a planner showed what we intended to do - leave lodging at x am, drive x miles/km, stop en route, arrive, check in, eat dinner, sleep. The next day(s) would be for site seeing.

It took most of a day to get from the Rhine area to Rothenburg, that included a short stop in Wurzburg to see the Residenz.

We talked a lot about what were the most important places and sights we wanted to see. The large map of Germany helped us see distances. So much ended up getting eliminated, and we had over 2 weeks just in Germany on that trip.

You will have to be at the airport at 7:30am to fly home.

Gentle advice: if you have only one week, pick 2 places max. Since you have only 6 full days, maybe one place and do a couple of day trips from there.
Also: if you don’t have reservations yet, make them ASAP

Enjoy your trip.

Cut out Switzerland.
Are you going to make reservations or find places as you go?

Unfortunately I agree that Switzerland should be cut out. That is a lot of driving for what looks like essentially one night in Switzerland and 2 partial days. Because of the nature of the mountains, the weather is very hard to predict and you will often run into very cloudy/foggy weather that obscures the mountains. When we were there for 3 nights we never saw the mountains due to this. I would not recommend taking the time and expense of driving there for one night with the high probability that the weather may not be favorable. Mountain destinations are better when you can afford several days to increase the likelihood of a clear view.
We like to travel fast, but I think this itinerary is much faster paced than would be enjoyable. I think you will enjoy your trip more if you stick with just Germany.

Thank you for your suggestions. I so appreciate your taking the time to help me!! Here is the new plan that does not include Switzerland. Once the plan is solid ( hopefully in the next 24-48 hrs) I will book a few hotels. I know this is almost peek season.
Day 1: Frankfurt- pick up car, stay over. ( July 8)
Day 2: Drive to Rhine and Mosel Valley and go see Eltz castle (July 9) Explore towns between of Bernkastel-Kues and Cochem as I heard they are the best. Perhaps stay overnight in Cochem or Bacharach (open to suggestions) (July9)
Day 3: Drive to Rothenburg ob ter tauber. Explore Rothenburg ob ter tauber and spend the night. (July 10)
Day 4 : Drive to Fussen and spend the night in Fussen so we can explore the castles the next morning. ( July 11)
Day 5: Explore Fussen, Neuschwanstein Castle, Hall in Tirol (July 12) Could drive the German Alpine Road to Salzburg -or -shoot down to Innsbruck to Berchtesgaden and end up in Salzburg.
Day 6: Salzburg and (Day trip to Hallstatt if possible) spend the night in Salzburg. ( July 13)
Day 7: Travel to Munich- explore and spend the night (July14)

Day 8: Munich - depart Europe at 10:30am ( July 15)

Whatever I say, I'm almost sure you will not undo what you've done with this new plan. I'll try anyway.

"We are not much for big cities and would prefer smaller scenic villages, castles, waterfront towns."

Your priorities are fine. Exploring (a word that peppers your posts) such places is a very good idea! The problem is you still don't have much time for exploring. Exploring is not packing and unpacking every day, then driving around the country in an attempt to "hit" a maximum number of Rick Steves' favorite places in 8 days. (Well, NOT 8 days, really. On Day 1 and Day 8, your only "hits" are airports. You have just 6 days.

"Day 8: Munich - brief exploration and depart Europe at 10:30am..." Come on. Prior to your "pack-up, check-out, drive to airport, drop-car routine" and your 8 am (or thereabouts) arrival at MUC, you will actually be exploring? Most of the other days are similarly unrealistic.

Day 1: Frankfurt- pick up car, stay over. ( July 8) Day 2: Drive to
Rhine and Mosel Valley and go see Eltz castle (July 9) Explore towns
between of Bernkastel-Kues and Cochem as I heard they are the best.
Perhaps stay overnight in Cochem or Bacharach (open to suggestions)
(July9) Day 3: Drive to Rothenburg ob ter tauber. Explore Rothenburg
ob ter tauber and spend the night. (July 10) Day 4 : Drive to Fussen
and spend the night in Fussen so we can explore the castles...

Day 2: I'm sure you can drive to Cochem and B'kastel and tour Burg Eltz in a day. But there's a ridiculous number of things that are interesting to see and do en route - things you are driving RIGHT past - and within Cochem and Bernkastel as well.

No Rhine Cruise?
No visit to the Pfalzgrafenstein?
No stroll through Bacharach?
No walk around Oberwesel's old town wall?
No refreshments at Gedeonseck terrace in Boppard (take the awesome chairlift ride up) or the Günderodehaus in Oberwesel?
No time to explore Rheinfels Castle ruins in St. Goar? What about one of the wine gardens on the Rhine, or in one of the Mosel towns (like this one in Winningen?)

Marksburg Castle - an intact Medieval castle in Braubach - and Reichsburg Castle are skipped too. Then later you chase down Neuschwanstein "Castle" far, far to the south in Füssen, for the overpriced and overcrowded 30-minute tour through this late 19th-century residence with its faux castle exterior (nope, not a real castle at all.) Even further is Berchtesgaden... "Berchtesgaden for 1/4 day..." REALLY?? To explore what? You may not know it, but there are WW II options elsewhere in Germany, like these near the Mosel:

https://www.tripadvisor.com/Attraction_Review-g12909179-d12863910-Reviews-German_War_Bunker_B_Werk-Besseringen_Saarland.html

https://www.westwallmuseum-irrel.de/en/

I encourage you to shed the tyranny of your self-imposed Rick Steves-inspired itinerary. Drive less. Pack/unpack less. Let your feet touch the ground. Explore more. Enjoy more.

We are not much for big cities and would prefer smaller scenic villages, castles, waterfront towns.

Day 7: Explore Berchtesgaden ¼ day and Salzburg for ½ day

If you are not much for cities and prefer scenic villages, I would skip Salzburg and spend the day in Berchtesgaden.

We don’t mind a fast paced trip as long as we get to see amazing cities and sights.

Fast paced to me is three things a day.... counting driving.

NOTE: Driving after dinner is fine, but one of the great things about adulting in Europe is the leisurely dining and wine.... Should not drive after that.

We are not much for big cities and would prefer smaller scenic villages, castles, waterfront towns.

You really have mentioned two separate trips - a northern trip ie. the Romantic Rhine and Moselle Valleys (Frankfurt, Eltz castle, the Rhine valley castles/villages, etc.) - And a southern trip -Munich, Southern castles, Fussen, Berchtesgaden, Salzburg, etc. - Whew! And that excludes a Swiss drive by...

If you are committed to flying into Frankfurt and back out of Munich in six travel days I would suggest picking a single focus in either the north or south, and devoting 4 days there, and two days to getting to the other end with one big stop on a long driving day. Example 1: Frankfurt for night 1; 2 hours drive max to a Rhine River town for night 2 (Rhine cruise and castles there for the day. The Marksburg is the best real castle you will ever see, and intact); Drive across to the Moselle and tour castles wineries and night 3; Drive to Rothenberg ob der Tauber, tour the town and take the Night Watchman's Tour, and night 4; Drive to Bamberg which is a charming University and well preserved town and night 5, OR, Drive south along the Romantic Road and identify one or two smaller towns on the way to Munich (Augsburg, Donauworth, Nordlingen, for lunches, afternoon stops, and nights 5 and 6; Night 7 is near the Munich Airport which is 20 miles outside the city. Example 2 - Head southeast, hit Rothenberg for night 2; Fussen, Neuschwanstein/Hohen Schwangau, Garmisch-Partenkirchen (Zugspitze) - Salzburg - Munich in a loop for nights 3-6; Night seven near Munich airport.

Either will be a memorable trip, and you will have fun.

Thank you all very much for your detailed recommendations. It's hard to gauge what are "must see" sights and how long to stay in each place considering we have never been to that area of the world. I have some things to think about and I have already adjusted my literary and slowed it down. Thank you, thank you!! I did book a 4 course dinner and hotel stay at the castle hotel schönburg in oberwesel on July 9. So at least we have one night booked.

Since FRA and MUC airports are fixed... and since Rothenburg is both on your list and on your way to MUC... here are some old-world towns you might explore between the Rhine/Mosel and Rothenburg. They are part of the German Half-timbered House network:

https://www.deutsche-fachwerkstrasse.de/en/Routes_Cities/From-the-River-Rhine-to-the-River-Main-and-the-Odenwald-Forest.html

Miltenberg is on this route and very charming:

https://www.youtube.com/watch?v=N9nwkeiWgcU
https://hastingshouse.typepad.com/hastings_house_us/2008/05/miltenberg-germ.html

I'd agree with the OP who recommended skipping Fussen and the N-Castle. In my humble opinion, the area is too commercial and crowded, and as stated, the N-Castle tour is only 30 minutes.
I do LOVE Rothenburg, and agree with your spending time here, and really enjoyed the Night Watchman's tour.
As much as I love Salzburg, I wouldn't go there for a half day.

I suggest blocking out each day, by the hour perhaps, after googling realistic travel, getting lost, and transition times [parking, checking into/out of hotels, ] to plan a more functional pace. I think this would make your trip more enjoyable. Check the websites of planned visits. Not all sights are open every day. Entrance to many sites require tours at scheduled times- can you arrive in time? Are tickets still available? How long are the wait times in lines?
How long is the tour?
I think you will have a great trip, just slim down the itinerary to a more workable pace.
Safe travels!