This comes via John Hibbard over at the Starboard forum.  He knows his stuff, so it’s a good post to read.

Length is a personal thing really and you are doing the right thing by trying it at full length first. A ball park figure is to cut the paddle down to between 6-9 inches longer than you are tall.
Another way to do it is to turn the paddle upside down so it is standing on it’s handle. Hold the paddle in front of you and where the shaft starts to flare away into the blade that should be at about eye level.
The best advice is to use it for a while at full length (use insulating or Duct tape around the handle to hold it in place), see how you get on and then cut off a small amount of the shaft and use the paddle for a few times again (use tape to secure the handle again). Once you reckon you’ve got it right then use some 5 min epoxy to hold it in place.

The full length isn’t really going to hinder you in flat water as you are always generally standing up right and driving forward with a pretty straight body angle. It’s in the surf where too much length (!) will be apparent –

Driving that last few strokes into the water as you start to go down hill on a wave will cause you to bend down due to the power and just to remain balanced. This is where you will find a too long shaft a bit of an issue. Your top hand will be too stretched, and straight, which doesn’t allow you to give a full power stroke. You may even find yourself committing the sup paddlers cardinal sin of dropping your top hand to the shaft . A slightly bent top hand will allow you to drive a better stroke that will help get you into the wave. At the end of the day though it is personal preference. Some strong guys won’t notice the long paddle shaft. I’m about 75kg of average build and strength so I really notice it.
You’ll probably find cutting 5cm off will give you the perfect size paddle shaft and it won’t effect your flat water paddling at all. If you can be bothered, how about cutting off 2cm at a time? I guess it depends how sharp your saw blade is an how accurate and neat you can be with your cut.
If you just want to go straight in for the 5cm cut then I don’t think you’ll have any problems with it.

Another thing to look for is your blade position in the water. If your paddle is too long then the blade won’t be going fully into the water, which means if you do hit the rail of the board it will be with the sharper edge of the blade. The correct length shaft allows you to get the blade deeper, and will mean any rail hits will come from the rounded edge of the shaft i.e less potential for damage. It will also mean your paddle is more under your board, which gives you more power and a better straight line course.

Paddle length – Starboard Forums