In our neighborhood, all of the houses were build at the same time and all of the water heaters in the neighborhood are failing at the same time. The way you know your water heater is about to fail is that the hot water starts to look rusty (and the cold water looks fine). About a week after you see the rusty water, the water heater fails and dumps water all over the garage. It's a big mess. You can avoid the mess by replacing the water heater before it ruptures.

People in the neighborhood are following three paths:

1. Replacing it themselves
2. Paying someone to replace it
3. Replacing it with something new, like a tankless water heater.

This is a good article on how to replace a water heater yourself:

Replacing A Water Heater

The problem is, the codes have changed in our state and this article does not reflect that. The change means that you have to move the flue (if it is a gas hearter) and add some parts (like an accumulator to handle water expansion). If you don't want to mess with that, one option that has worked well is going to Home Depot. Their installation prices are reasonable.

If you decide to go tankless, here is a good summary of it.

A number of water heaters have failed prematurely. The "dip tube" is a pipe that runs from the top of the tank to the bottom to carry the initial cold water from the top of the tank to the bottom. The water, once heated, rises to the top of the tank and out to the rest of the house. The heaters in question had dip tubes made out of a particular plastic that lacked a vital polymer, and the tubes broke down. The evidence of a dip tube problem is limited hot water supply and white "crumbs" clogging the aerators of your sinks.