Luka Modrić is still very useful. Him still being in Real Madrid is the prime example of it. Real Madrid lets players go whenever they start dropping in terms of performance. However Real Madrid never let him go even though he is really old at this point. He is 38 years old, and he is still in Real Madrid because he is still playing well.
You know Real Madrid even let Sergio Ramos go because he was not in his prime anymore, but they did not let go of Modrić because they know how valuable he is. And another reason why Real Madrid has not let him go is because they have really not found any good substitute for him, they will have to find a replacement soon to be honest.
Luka Modric has a very strong commitment to his club, that's why we almost rarely see him decline, but his age will really prevent him from being the main choice for Ancelotti, especially when the coach already has other choices that are no less good than Modric, so slowly Modric has having to accept only playing part time or when the coach feels the need to play him, it's not good but that's what all players will experience when they reach old age.
Luka Modric gets an extra year on his contract and when that is done I think he will leave Real Madrid or retire as one of Real Madrid's best players with the many trophies he won while playing at this club, or he could go to a smaller league, like which a lot of older players do, and we'll only know that when he announces it. Actually, Real Madrid has already found a replacement.