It's just that, is it possible that at his current age, he can compete fully? I don't think so, it will definitely affect the stability of the performance. But I personally still really expect that he will be right here.
It's also possible they're not looking for his on-field performance as mentioned above. It's not new, I recall Liverpool doing the same thing with Milner. I suppose a team player who can lead and be vocal in the dressing room is essential. I believe a one-year contract for old but key players is also common. Most of the time they become the second or third choice for the captain position. I think it's a good deal if their goal is to rejuvenate the squad with new leaders for the future. CMIIW.
Modric is wholeheartedly committed to Real Madrid. I remember there was a big decrease in the contract fee and despite this, he accepted the offer. If it was another football player, he could have gone to Saudi Arabia and earned big money, but he seems to have decided to quit football in Real Madrid. The Croatian football player will be in the background next year as well, but he does not seem to worry about that. He will take on an important role in the team.