Your plan numbers don't really make sense, because you're mixing investments in the market with rental properties. There are really two ways to figure this out.
1. Take the net income from your rental properties and subtract it from your projected annual expenses. Then apply the 4% rule to your investments and see if it generates enough to cover the remaining expenses. One benefit of this approach: it preserves those rental properties as part of your estate to pass on to your kids. Downside is that you are currently getting only a 2% return, and that may not be enough to cover the delta. But better to know that now, eh?
2. Plan to sell the rental properties, and subtract selling costs and capital gains taxes to figure your net profit. Add that amount to your 'stache and apply the 4% rule to the whole thing to see if you're good to go. Downside is, of course, taxes, plus no property to pass on to your kids.
In neither case do you count the value of your home. You will always need a place to live. So unless you're willing to downsize significantly to free up some of that equity, or to sell and rent (thus increasing your annual income needs), you don't get to count home value or home equity in the analysis.
Looking at the numbers you have below, you have $1.4M in invested assets (I'd keep the $50K as an EF), so that gets you $56K/yr. You also have about $2M in investment property, which you say is generating 2%/yr in net income, for another $40K. So that's right at your $96K number, even without considering your SS at age 70. And it also doesn't account for any growth or further investments over the next 5 years. So I think you are just fine -- basically, you have a ton of assets, which gives you a lot of flexibility here. And I do count SS, btw, because at your age, it's unlikely to go away completely for you.
What might help is more of a year-by-year analysis -- plan out your income and expenses as they change over the years, which will help you project how much will be left in your 'stache by the time SS kicks in. You can also run that under various scenarios, including selling one or both properties. I bet you will find that you are just fine in any case. But you want that to be based on a more detailed analysis, instead of just general references to the 4% rule -- that's a good target when you're in the planning stages, but it's not the kind of etched-in-stone rule that can accurately predict success at the level of detail you're trying to use it for.
