Re: how to remove lower unit on 1961 Evinrude
Hi hanna. You're right that "milky" oil is the telltale sign that there's water in the oil, but you said the top of the oil was still pretty clear, which is a good sign. If a perfect world, the gear oil goes in looking like honey, but should never get "milky", although if it gets, black and stinky overtime then that's actually ok. I like Altn's idea of simply refilling the gearcase with oil and running it in the water for a few hours, then checking the condition of the oil. If you're really, really lucky it will still look like honey and you should be ok. You do need to use outboard lower unit gear oil. It's available at Walmart for about $5 a qt. There's enough oil in 1 qt. to do many refills of the gearcase, if need be.
A lower unit seal kit does come with the nylon washers as well as a propshaft oil seal, which is visible if you remove the propeller and look down the prop shaft. You'll see what looks like a metal disc around the propshaft at its base, but if you look closely you'll see that it has a distinct border between it and the housing. It's removed with a tool called a seal puller, after you've completely disassembled the gear case. You put the propshaft bearing in a vice and lever out the seal. There is also a driveshaft seal found underneath the impeller plate. It is also leveraged out using the seal puller as well. The seals can be very stubborn and you often have to snip, clip and chip them out, so be careful of their soft aluminum housings. There is also a "spaghetti" seal, which is like a rubber noodle that is install in a groove between the two halves of the gearcase and coated with sealant. The sealant the manufacturer recommends is called 3M 847. It's usually not sold in stores and you'll probably have to order it, but it's readily available at amazon and other sites. It's about $20+ for a toothpaste size tube, however. So some folks use easier to get products like Permatex 1000, Ultra Black or Aviation gasket sealant. There are also a couple of o-rings that usually come is a LU seal kit. One goes on top of the driveshaft and outside of the propshaft bearing. There is also one that the lower shift rod passes through and a very tiny one that the shift rod pivot screws, which is the only phillipshead screw on the gearcase. You apply the gasket sealant to the mating surfaces of the gearcase halves as well as the gear case screws and perimeter of the oil seals themselves. The seals look sort of like metal donuts with black rubber bands and a very thin spring inside them. You tap them into their respective housings and then inset the driveshaft and propshaft and reassamble the whole kit and kaboodle. It's a lot of work at first, but well worth doing if need be and you'll learn a lot about the motor. If you do it right, you shouldn't have to do it again for many, many years.

