Not so, a lot of effects are still done physically and in camera, the trick tends to be now to effectively blend the two together so you don't know where the practical effect ends and the CGI begins. For instance Transformers did a lot of practical effects on set/location and it was the fantastic merging of these with the CGI Transformer characters that sold the effect that these huge robots were really there interacting with the environment and the cast.

Also the talent used for model building special effects is still very much alive today. All the new Star Wars movies still used practical effects in addition to the CGI. The focus has simply changed somewhat and the model building tends to be done to create miniature sets for environments. The lava scenes in Episode 3 on Mustafar were practical effects augmented with CGI as were a lot of the Coruscant  cityscape scenes.

And they're not all dead at all, most of them have their own effects companies now, or have moved on to become film directors in their own right. And one of the guys that was there from the beginning, Lorne Peterson (model builder on all 6 Star Wars movies) is definitely alive and well as I met him last year, and he was a very nice chap.