[MEBCWD]

Did you make your template to fit the aluminum plaque or did you allow for the bushings and bit when you made your template?

 

[MEBCWD]

Frank here is a picture of how the inlay kit works.

If you make the template based on this you should have no problem clearing the pocket because the collar gives you correct offset for the template to cut the outside edge of the pocket. Just remove the rest of the material in the pocket.
Remove the collar and using the same template you cut the inlay. you do need to make sure you stay against the temple because if you get off of the template you will be cutting into the inlay.