Not sure if this is Fanon or Canon, but wasn't the Firelord originally the head of the Fire Sages? .
It's extended canon - something the writers said, but not in the TV series proper.
The problem with picking a FIre Sage is that none of them were chosen for leadership ability. The Fire Lords didn't want rivals, after all. The current crop of sages might know a lot about ceremonials rituals and. more usefully, about the spirit world and related matters, but they'd have no idea how to rule a country.
Basically, if Zuko dies, Iroh needs to train up a replacement, because there's no one else in the fire nation competent to rule it. The replacement can learn on the job, Iroh can take the throne during the interim, or he can find some plausible stopgap, but whatever happened, Iroh wouldn't be able to enjoy his retirement.
No one can take his place, because no one knows the Fire Nation as he does.