Nice idea, but I think that might be a problem for players with weaker eye-sight if you reduce the visibility of a letter they need to type.
A simple timer bar next to the word is the simplest solution but might not match your aesthetics. It can have an hourglass visual though.
You can add a gradually increasing cracking shader effect over the letters by adding a texture to them maybe. The letters crack into pieces and then destroyed after the time limit is over and then a new word is shown. You can show the color changes of the typed letters even with the cracks.
Or maybe an easier approach would be to show an eraser moving towards the word from the left side of the screen, when it reaches the word a quick erase animation is shown. If word is typed before it reaches, eraser returns to the left side of the screen and starts moving again towards the new word.
What do you think?