Substantially equal payments. If you want to turn your retirement money into an income stream before you’re too old, you can do it with the help of what the IRS calls rule 72t. This allows you to dodge the penalty as long you take the money out in “substantially equal” payments over your remaining lifespan or that of you and a beneficiary.
There’s even a loophole within this loophole. The payments don’t’ really have to stretch over your remaining lifespan. You’ve satisfied the IRS if the payments last five years or until age 59½, whichever comes later. After that you can take out as much or as little as you want.
There are a handful of ways your withdrawals can qualify as “substantially equal” in the eyes of the IRS, and they can get complicated. The web abounds with 72t calculators to help you sort things out, but you might want to double check the formula you settle on with a tax advisor.