It looks like this is the itinerary for a trip from Iceland Travel. So my first thought is that you will probably save some money if you do it yourself vs. paying for the tour! (I’m not sure if you plan to just follow their itinerary or actually go on a tour with them.)
Several of the days look ambitious to me with a 5-year-old and a 3-year-old. For example, on the first day you are supposed to arrive at the airport, explore the Reykjanes Peninsula, maybe visit the Blue Lagoon, drive to Reykjavik, explore Reykjavik, and then drive to Hveragerdi. That’s a lot on a few hours of sleep if you took an overnght flight.
And Day 4 has you going from South Iceland to Egilsstaðir out in East Iceland. Assuming they stay close to Vik in South Iceland, that’s almost 6 hours of driving that day. And they plan to do some stops along the way. I think my kids would be miserable after a day like that, but maybe yours would be better!
Since you’re not set on doing the entire ring road, maybe take a look at my sample 1 week Iceland itinerary with kids? You could continue heading east to Jökulsárlón after day 4 if you had more time.
Let me know what you think. Thanks!