Help me decide: iPhone 5 or iPod Touch (5th gen)

[kevinbellamy]

So, my At&T contract is finally up and after 4 years, I have no intentions on renewing my contract. Typically I would purchase an iPhone for $199 with a 2 year contract and update it to the newest/most current model every 2 years keeping the TAP (Text Accessibility Plan). However, after heavy consideration, I've come to the realization that I can't afford a $50 phone plan or maybe I'm too stubborn to dish out that much - That's $1200+ for 2 years - but I also accept the fact that phones are social burden these days and almost a necessity in order to keep in touch with people.

I've decided to drop my data plan and use my device as a WIFI-only device. I'm just undecided if I want a iPod Touch or an iPhone for this.
The only reason I'm not keen on the Touch is the difference in megapixels in comparison to the iPhone (5MP vs 8MP). Of course, with Instagram or Photoshop, I could easily edit photos so they look far superior either way so really it's no major concern.

I've been reading Apple has plans to release cheaper (possibly plastic) iPhone. I may wait unless someone can sell me on getting the Touch. Id rather pay $300 for a Touch instead of $600+ plus for an unlocked iPhone

Suggestions? Please do not recommend any non-Apple products. After using iPhone exclusively for 4+ years, I don't even know how to turn on a Galaxy or Blackberry, let alone use one.