Maybe you don't have the shifter rod all the way into the sleeve. The notch in the rod must line up with the bolt hole. You have to get it perfect too or the bolt will bind and rub the threads off as it spins along the shift rod. When I have the lower unit off, I always very slightly spread the coupling to ease install and alignment when putting in the bolt with your hemostat or long nose pliers. Even when you take the bolt out, be careful that it isn't turning too hard. if it turns too hard then you need to move the rod up or down inside the coupling until it doesn't bind. How did the water pump impeller look? If okay, then maybe your indicator tube is plugged with debris. If so, then you should pull out the thermostat as debris collects there too. Blow things out, use a vacuum, whatever.........get the crap out as best you can. If the impeller is/was breaking apart, then the pieces may be up inside the motor where I mentioned above. I have seen a new impeller installed but the debris from the old damaged one was left in the motor.