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Standard accepted practice for 'perfect' cutless (stave) bearings clearance** is 0,001-0,002 inches per inch of shaft diameter, assuming perfect shaft alignment.
At less than the above the necessary 'film thickness' of the water will not develop to be sufficient to support the shafting side-loads and the result will be rapid wear of the rubber faces of the bearing surface. 1/32" (0,030") is where I usually change out to a new bearing (but I engineered such plain bearing for a living for many many years so I have wee bit more of the needed info - cheaper than refacing or replacing a shaft).
That stated, it all depends on how accurately the engine is aligned with the shaft and how accurately the center of rotation of the shaft is relative to the bearing length.
Simple speak: if you are encountering no knocks (shaft whip) nor undue vibrations due to shaft side loading (bad engine alignment), the shaft is looooong in relation to the distance to the strut/bearing housing then 1/32" tends to be the max. technically agreed clearance of a cutless in normal marine applications. If you are planning a looong trip/voyage then now would be a good time to consider replacement; if daysailing etc. then 1/32" will probably be OK (short term).
BTW/FWIW ... that bearing is NOT held in place by those set screws. Those set screws are there ONLY as a 'backup,' as what holds such bearing in place is an *interference fit* wherein the OD of the bearing is larger than the bore of the 'housing' .... by approx. 0,001" per inch of housing ID ... The bearing being 'larger' in OD than the bore of the 'housing' is PRESSED (forced) into the bore of the 'housing'.
Last edited by RichH; 07-30-2011 at 10:41 PM.