A buddy of mine had this same issue. If you go with the longer screw and nut solution you may end up with tire contact when you hit a hard bump and travel the rear suspension. It happened and was bad for the tire.
I recall that there was enough material in the fender to go up to the next thread size. If you do that, lift the bike so that the rear wheel drops away from the threaded hole so that you do not accidently drill or tap into the tire. Not a lot of room there.
05 speedmaster - 1100cc, 11:1 racing pistons, Carillo rods, thunderbike cams, ported and polished head, 2mm over intake and exhaust valves, Barnett kevlar clutch, scepter pipes, oversize manifolds, 45mm HSR's, TTP stage 4 firestarter