I realized that the reason I was not effectively letting go was because I did not completely trust my surroundings/external environment. I was still in some kind of fight or flight feeling. Once I focused on this trust feeling, I was finding it much easier to let go. The main areas to focus on are the eye sockets and the space between eyebrows. I guess the will center is located here and when you completely let go of the will center, you automatically reach a relaxation space where reverie, fantasy and other great feelings start to kick in. Reaching this deep relaxation space while maintaining alertness is the key to observing hypnogogia and deeper dream states.
This state in fact redefined what I thought relaxation was. Previously, I used to associate relaxation strongly with stupor or a mental numbness. Now I can see that it is possible to be fully awake and completely relaxed and its quite a wonderful state to be in.