Regarding the cut out:
I agree with the above... That is a designers question.
Switching to a transom mounted rudder would be fine. What you loose in hydrodynamic efficiency is insignificant in a cruising boat, and you gain MORE directional stability. A transom mounted SKEG/rudder would be best!
You would be better off NOT going shorter but wider on the rudder, IMO. Searunners have used a number of different kick up designs successfully. My favorite kick up rudder btw, is the skeg & rudder combination, (BOTH kick up), that Jim & John designed on my previous project
, a SeaClipper 28. It didn't squeak, rattle, or fail in any way. It had only ONE metal part, the 316 grade SS rod. It was perfect! Yes, it's a lot of work to build...
An easier option is a transom mounted, kick up, "balanced" spade rudder... Look up old Searunner
designs, or call John Marples for the plans.