Do you just take the hit on penalties during that time? Am I missing a huge piece of information?
No, and yes, respectively.
Unless there is some crazy hair on fire emergency, don't pay a 10% penalty on your 401K. It's just a killer. Even if there is an emergency you should try avoid that.
There are 2 basic ways discussed here a lot:
1) SEPP - Substantially equal period payments. It's also referred to as rule 72t. In summary, you take a certain amount (within the IRS rules) each year and it can't be changed until you're 60. The number starts at around 2-3% of your portfolio value.
2) Roth conversion pipeline. You convert your 401k's to IRA's when you quit, then each year you convert some funds from IRA to Roth IRA. You pay tax on the amount converted. After 5 years you can withdraw these funds tax/penalty free.
It's important to also look into ways to supplement your income during the first 5 years, or between 40 and 60 if you want to leave the retirement funds alone. Many people suggest a 3 pronged attack:
1) Save everything you can into tax deferred accounts.
2) Save the max into Roth IRA's.
3) Save any excess into a taxable brokerage account which you can draw down during the first x years of retirement.