I think it definitely depends upon what other people in the area have done with their home. It may be worthwhile to consult both a realtor and contractor who can give you a good idea of what other homes in your neighborhood have as far as features. Do they have walk-in closets and large master baths? Or are formal living rooms a selling point in your neighborhood? Have other people remodeled? What does a trusted realtor say as far as resale value?
That being said, if YOU are not using your current formal living room, and you would gain enjoyment from an expanded master suite/spa with a walk in closet, and you plan to stay in your home for some time, by all means consider the renovation. You're not talking about a major renovation in terms of cost, and right now, kitchen and bath renovations give owners the most return on investment. In addition, the current construction trend is away from "formal" living rooms and toward the great room concept, which is more casual. Also, master bath renovations are trending toward "spa-like" spaces, complete with generous closet space. Often, new homes have his and hers closet spaces. So, based upon current building trends, the investment may be worthwhile.