I ended up taking a gig playing bass with the US military. Playing bass for Uncle Sam is making me far more money and the benefits are far better than I ever had before. If you are young enough and want to play full time, this may be the only option left to make a real living playing music.
I auditioned for an army soul/jazz band last year, which i had the skills for but i ended up passing on it because of the time i'd have to devote to it. But man, the benefits were amazing!
As for local live music, it will never die. You may have to work in a store or clean bogs for a living, but if you have the passion and dare I say it, obsession, there's always a gig to get to. There's a really active live local scene here in my home town and a decent crowd of supporters who always show up. We all have day jobs but love music.