Best way to handle old contacts without deleteing them

We have run into an issue where if we allow uses to Delete contacts, CRM will also delete the leads associated with the contacts.   We report on lead progression and pipeline contributions and can not allow leads be deleted and so we are preventing our users from deleting contacts. 
We are running into situations where users are finding duplicate contacts, and contacts where the person has left the company.  

We also do not allow our users to Merge records.  I have been exploring that but it would appear that this would turn the merge function on for all objects and we can not let our users merge accounts.