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These can be a challenge to get back together. As has been suggested, some folks do place the motor upside down to do this. These have a short shift shaft that meets about 4″ above the lower unit. These are notorious for being hard to align. If you are 3″ away, I bet that you are having issues with getting the drive shaft into the hole through the power head adapter plate. Be sure to keep the lower unit square to the drive shaft housing. Once you get the drive shaft through the adapter, you will need to make sure the water tube enters the alignment tube on the water pump. At that point, you then can engage the shift shaft. As I said, they are a bit tricky, but once you get the hang if it, they go in fairly easily. Later models, (1969 I think) they lengthened the shift shaft and it makes it a lot easier to install.
Steve