strange smell around nipple and areola after breastfeeding;

I am 33 years old. I breast fed my son til he was 6 months. I am now pregnant with my second child. Lately, I have noticed an accumulation of a waxy type substance around each nipple and areola. In addition, I notice a strange smell coming from them. The areolas are a bit dry and are flaking.

I was told only to wash with plain water, which I have been doing, but it doesn't get rid of the problem. I am concerned that this may impact my ability to breastfeed my second child.

I would suggest you had this checked by a doctor if you haven’t already. My sister had similar problems and she waited and waited and her symptoms only got worse because she had an infection and needed to be treated by antibiotics.
There are also other causes of nipple discharge like certain growth within breasts but they usually appear in just one breast and the discharge comes from one breast only and when not stimulated.
Dryness and flakiness along with discharge could be a sign on fungal infection or bacterial, so don’t be lazy and visit your doctor for a check up.