No, it should retract. That is what the starter solenoid does, it extends the drive pinion to engage the flywheel ring gear, and makes contact between the battery cable and the starter motor so it runs. The little wire that comes from the ignition switch activates the solenoid. There is a big spring inside the solenoid. The innards may be gooey from age or even broken. It comes apart pretty easy just don't break the solid copper wires in there. Or get a new one. GM used the same one for about a hundred years. When we were poor we would rebuild the solenoid for next to nothing, and just flip the big copper washer over. As for the starter/ring gear gap, I think it is .020" engaged and it should not be touching. But it is difficult to extend the starter gear and check with a feeler gauge. That is what the shims are for and I have never seen a good starter fit without at least a couple of shims. By me we have an old timey auto-electric rebuilder guy and he is just fantastic. His stuff will outlast the car. I never buy a rebuilt stater or alternator from a chain store. Good move on the FSM, you will be delighted with the information.